Embed Size (px)
Citation preview
COPYRIG
HT U
CT
m-Commerce: An analysis of South African scenarios from the perspective of the
mobile operators – 1999 – 2004
A Research Report
presented to
The Graduate School of Business
University of Cape Town
in partial fulfilment
of the requirements for the
Masters of Business Administration Degree
by
Jonty Levin and Roderick Wolfenden
Supervisor: Professor Gary J. Stockport
COPYRIG
HT U
CT
I
Acknowledgements
This report is not confidential. It may be used freely by the Graduate School of
Business
To Pat Nichols and the Staff of Standard Bank Library we express our gratitude for
allowing us to make use of the library and for sending us magazine and journal
articles of interest. Our colleagues, Stephen Carrott, Ismail Dockrat, Farhard Khan,
Werner Mulder and Richard Simpson, were most supportive of our efforts. We
appreciate their assistance in sharing their technical knowledge and sources of
information. We thank our friends, Clifford Brown and Henry Souchon, for sending us
useful articles and publications. We are most grateful to Sheila and Alec Schuster for
the loan of their car while we were in Johannesburg.
I wish to thank my wife, for her inspiration, encouragement and support throughout
the year and especially during the research study.
Roderick
I wish to thank my parents for their support and encouragement throughout the year.
Jonty
We were privileged to work under the erudite guidance of Professor Gary J.
Stockport. We appreciate the extent to which he availed himself to us, aided us in
developing our focus and taught us useful lessons in doing research. Professor
Stockport was supported by his most approachable and able assistant, Mrs Elsie
Plumb, whose friendly help was valued. To Professor Stockport and Mrs Plumb, we
express our heartfelt gratitude.
We certify that the report is our own work and that all references used are accurately
reported.
Signed: Jonty Levin
Roderick Wolfenden
COPYRIG
HT U
CT
II
M-COMMERCE: AN ANALYSIS OF SOUTH AFRICAN SCENARIOS FROM
THE PERSPECTIVE OF THE MOBILE OPERATORS – 1999 – 2004
ABSTRACT
The attractiveness of the m-commerce industry, in general, and in the South African
context, in particular, are assessed within the framework of Porter’s Five Forces,
Grove’s Sixth Force and two additional forces: the role of government and pre-
existing industry structure. The suggested positions along the industry value chain are
reviewed and the actuality explored. Thereafter, issues facing emergent industries
such as the need for co-operation in order to cross the chasm, are discussed. Finally,
three scenarios facing the South African mobile operators are considered. The extent
to which industry participants co-operate will influence whether widespread adoption
is achieved or not.
KEYWORDS: Porter’s Five Forces, Grove’s Sixth Force, 10X force, value chain,
inflection point, emerging industries, co-opetition, technology adoption lifecycle,
technological uncertainty, Chasm, gorilla, widespread adoption, mobile operators,
MTN, Vodacom
COPYRIG
HT U
CT
Table of contents
1 Introduction .........................................................................................4
1.1 Aims of the research ............................................................................. 4
1.2 Focus of the theoretical literature review........................................... 5
1.3 Benefits of the study ............................................................................. 5
2 Theoretical Literature Review...........................................................7
2.1 Definition of m-commerce.................................................................... 8
2.2 Eight Forces industry analysis........................................................... 11 2.2.1 Porter’s Five Forces ....................................................................................11 2.2.2 Analysis of Porter’s Five Forces .................................................................11 2.2.3 Threat of new entrants.................................................................................12 2.2.4 Suppliers......................................................................................................13 2.2.5 Customers....................................................................................................13 2.2.6 Substitutes ...................................................................................................14 2.2.7 Adding to Porter’s Five Forces - Complementors ......................................15 2.2.8 Adding to Porter’s Five Forces - Pre-existing industry structure................15 2.2.9 Adding to Porter’s Five Forces - Government ............................................17 2.2.10 Conclusion to Eight Forces industry analysis..........................................18
2.3 Value chain .......................................................................................... 19 2.3.1 Mobile industry value chain........................................................................19 2.3.2 m-Commerce value supply chain................................................................20 2.3.3 Conclusion to value chain ...........................................................................22
2.4 Strategic manoeuvring ....................................................................... 23 2.4.1 Emerging industries.....................................................................................23 2.4.2 The technology adoption lifecycle ..............................................................24 2.4.3 The Chasm...................................................................................................25 2.4.4 Co-opetition.................................................................................................27 2.4.5 Gorilla company..........................................................................................29 2.4.6 Conclusion to strategic manoeuvring..........................................................31
2.5 Conclusion to the literature review................................................... 31
3 Research methodology......................................................................33
3.1 Desk research ...................................................................................... 33
3.2 Survey .................................................................................................. 34 3.2.1 Mailed survey..............................................................................................34 3.2.2 Interviews ....................................................................................................36
COPYRIG
HT U
CT
2
3.3 Limitations of the study ..................................................................... 38
3.4 Cost considerations............................................................................. 38
3.5 General lessons learnt ........................................................................ 39 3.5.1 Data capture.................................................................................................39 3.5.2 Comparative analysis of telephonic and face-to-face interviews................39
4 Findings..............................................................................................41
4.1 Definition of m-commerce.................................................................. 41
4.2 Eight Forces industry analysis........................................................... 41 4.2.1 Threat of new entrants.................................................................................42 4.2.2 Suppliers......................................................................................................44 4.2.3 Customers....................................................................................................44 4.2.4 Substitutes ...................................................................................................48 4.2.5 Adding to Porter’s Five Forces - Complementors ......................................48 4.2.6 Adding to Porter’s Five Forces - Pre-existing industry structure................49 4.2.7 Adding to Porter’s Five Forces - Government ............................................52 4.2.8 Conclusion to Eight Forces industry analysis .............................................56
4.3 MTN and Vodacom ............................................................................ 57 4.3.1 Company backgrounds................................................................................57 4.3.2 Organisational cultures................................................................................58 4.3.3 Approaches to m-commerce........................................................................59
4.4 m-Commerce value chain .................................................................. 60 4.4.1 Transport .....................................................................................................62 4.4.2 Basic enabling services ...............................................................................63 4.4.3 Transaction support .....................................................................................64 4.4.4 Presentation services and personalisation support ......................................66 4.4.5 User applications .........................................................................................66 4.4.6 Content aggregation ....................................................................................68
4.5 Conclusions to the findings ................................................................ 69
5 Scenarios ............................................................................................71
5.1 Falling into the Chasm ....................................................................... 72
5.2 Bowling Alley Forever........................................................................ 73
5.3 Mass Adoption .................................................................................... 75
5.4 Conclusion to scenarios ...................................................................... 77 5.4.1 The role of government ...............................................................................77 5.4.2 The role of the mobile operators .................................................................78
COPYRIG
HT U
CT
3
6 Recommendations to mobile operators...........................................79
7 Areas for further work .....................................................................80
8 Bibliography ......................................................................................81
Table of figures and tables
Figure 1:Forecast m-commerce revenues ......................................................................4
Figure 2: Partial representation of literature review ......................................................8
Figure 3: Diagrammatic definition of m-commerce ....................................................10
Figure 4: Mobile value chain .......................................................................................19
Figure 5: m-Commerce value chain.............................................................................20
Figure 6: Organisational lifecycle................................................................................23
Figure 7: The technology adoption lifecycle ...............................................................24
Figure 8: DoCoMo: A gorilla emerges ........................................................................30
Figure 9: Mobile operators' revenue ............................................................................51
Figure 10: m-Commerce value chain...........................................................................62
Figure 11: The Chasm, Bowling Alley and Tornado...................................................71
Table 1: Levels of co-operation ...................................................................................27
Table 2: Rated telecommunications analysts...............................................................35
Table 3 : Interviewees..................................................................................................38
Table 4 : Cost breakdown ............................................................................................39
Table 5 : Projected market share of third mobile operator ..........................................43
Table 6: Expected successful m-commerce applications.............................................45
Table 7: Likely pace of adoption of m-commerce applications ..................................46
Table 8: Penetration growth expected to slow.............................................................50
Table 9: Company profiles...........................................................................................58
Table 10: Operators' proposed m-commerce roles ......................................................60
Table 11: Analysts and industry participants proposed m-commerce roles for
operators ................................................................................................................61
Appendix A: Survey Guide..........................................................................................85
Appendix B: Interview Guide......................................................................................95
COPYRIG
HT U
CT
4
1 Introduction
Mobile commerce (m-commerce) is the product of the convergence of the two fastest
growing technologies of the modern era (Attwood and Duncan, 2000): mobile phones
and the Internet. Mobile phone maker Nokia predicts that there will be more than
1 billion mobile phones in use, world-wide, by 2005 (Kelsey, 2000). Industry
commentators expect that m-commerce will revolutionise the telecommunications
industry and the way businesses reach and transact with consumers. As shown in
Figure 1, the industry is expected to enjoy rapid growth over the next four years.
World-wide, m-commerce revenues are expected to exceed $14 billion by 2004.
Consequently, earlier in 2000, mobile operators in the United Kingdom (UK) and
Germany, anxious to secure a slice of this potential income, paid $34 billion and
$45.9 billion, respectively, for third-generation (3G) mobile licences: a pre-requisite
for many advanced m-commerce applications (Financial Times, 2000c).
Figure 1:Forecast m-commerce revenues
0
2
4
6
8
10
12
14
16
2000 2001 2002 2003 2004
$ b
illio
ns
North America Western Europe Asia Other
Source: Jupiter Communications, 2000
1.1 Aims of the research
Given the interest around m-commerce and the rapid pace at which the industry is
evolving, it was considered worthwhile to investigate the underlying dynamics of the
COPYRIG
HT U
CT
5
industry. As a result of this industry’s potential it would be useful to analyse the
factors that make it attractive to mobile operators and to assess their competitive
strategies. This study will, therefore:
define m-commerce;
evaluate the attractiveness of the m-commerce industry, viewed from the
perspective of the mobile phone operators;
determine the potential positions along the value chain in which the mobile
operators could compete;
consider the necessary strategies which the mobile operators should pursue in
order to ensure that the m-commerce industry achieves widespread adoption;
conduct an analysis of the South African m-commerce industry; and
develop scenarios of the South African m-commerce industry from the perspective
of the mobile operators.
1.2 Focus of the theoretical literature review
The focus of the research will be to:
establish the attractiveness of the m-commerce industry using an Eight Forces
analysis;
establish which positions the mobile operators are likely to take along the industry
value chain;
establish the strategies operators ought to pursue so as to overcome the uncertainty
associated with an industry in its early stages of development, and to increase the
likelihood of the underlying technology achieving widespread adoption.
1.3 Benefits of the study
As the m-commerce industry is an emergent high-tech industry, its ultimate success –
that is, whether it achieves widespread adoption or not – is subject to the strategies
industry participants pursue. The study identified the importance of co-operation
amongst industry participants in order to overcome the uncertainty associated with
such industries.
COPYRIG
HT U
CT
6
The study, in developing three scenarios of the South African m-commerce industry,
identified critical factors which would influence the industry’s ultimate success and
profitability. These factors are the role of government and the manner in which
mobile operators promote the industry, meet customer needs and work together.
COPYRIG
HT U
CT
7
2 Theoretical Literature Review
Mobile commerce is the product of the convergence of two of the fastest growing
technologies of the modern era: mobile phones and the Internet (Attwood and
Duncan, 2000: p24). Much excitement has, therefore, been generated about the
potential of the industry and mobile operators have paid substantial amounts to
participate in the m-commerce industry: third-generation (3G) mobile licence auctions
raised $34 billion in the UK and $45.9 billion in Germany (Financial Times, 2000c).
The risk for the mobile operators is high: they will only recover their investments if
they choose their position in the industry well and m-commerce is enthusiastically
adopted by consumers.
After developing a definition of m-commerce, the study will assess the attractiveness
of the industry using Porter’s Five Forces framework (1980), Grove’s Sixth Force
(1988) as well as Hubbard, Pocknee and Taylor’s (1996) additional two forces: the
role of government and the impact of pre-existing industry structure. However, the
success of a firm within in an industry is also dependent on the firm’s position along
the industry value chain (Lewis, 1999). Barnett, Hodges and Wilshire (2000) of
McKinsey have suggested a value chain for the m-commerce industry, which consists
of seven links. The interplay between these two broad sections is shown in Figure 2.
In choosing to participate in the m-commerce industry, the mobile operators will face
uncertainty as to whether the underlying technology will receive widespread adoption
or not. In considering this issue, the technology adoption lifecycle (Moore, 1991;
Moore, Johnson and Kippola, 1998) will be explored as well as strategies such as co-
opetition (Brandenburger and Nalebuff, 1996), which operators may need to deploy
so as to overcome these uncertainties. Mobile operators which achieve overwhelming
market dominance within their chosen segments of the value chain stand to profit
handsomely and become the industry’s gorilla company (Moore, 1991; Moore,
Johnson and Kippola, 1998).
COPYRIG
HT U
CT
8
Figure 2: Partial representation of literature review
1 Barnett, Hodges, Wilshire; 2000 2 Porter; 1980 as reprinted by Hubbard, Pocknee, Taylor; 1996 3 Hubbard, Pocknee, Taylor; 1996 4 Grove; 1988
2.1 Definition of m-commerce
The Global Mobile Commerce Forum (GMCF) defines m-commerce as “the delivery
of electronic commerce capabilities into the consumer’s hand via wireless
technology” (Attwood and Duncan, 2000: p8).
This definition can be decomposed into two areas:
Wireless technology enables communication to handheld electronic devices
without the use of fixed networks. Thus, as indicated in Circle 1, Figure 3, such
1
New entrants
Sup
plie
rs
Government
10X
Transport Basic enabling services
Transaction support
Presentation services
Personalisation support
User applications
Content aggregators
Pre-existing
industry structure
2
2
3
3
2
Cus
tom
ers
4
Substitutes
2
4
Complementor
10X 4
COPYRIG
HT U
CT
9
devices include mobile telephones, notebook computers and other mobile devices
such as personal digital assistants (PDAs) (Scientific American, 2000: p38).
Transactions conducted using a dial-up connection over a fixed network are not
regarded as being within the ambit of m-commerce even if a notebook or PDA,
for example, were to be used. To date, though, the focus has been placed on
mobile phones; hence, the emphasis in the literature. Companies are now
beginning to place greater emphasis on the use of other wireless devices to access
the Internet. For example, NTT DoCoMo, a Japanese mobile operator which has
enjoyed substantial success with m-commerce, recently signed an alliance with
Palm, manufacturer of handheld devices, to encourage the use of handheld devices
for accessing the internet (Nakamato, M, 2000: p1)
In terms of the GMCF’s definition and the fact that m-commerce is an alternative
channel for conducting business (The Banker, 1999: p92), it can be regarded as a
branch of e-commerce (www.mcommercetimes.com, 2000). e-Commerce is the
use of electronic networks – including the Internet – for buying and selling goods
and services (Laudon and Laudon, 1996: p25). Indeed, m-commerce is identified
as a means to access the Internet from handheld devices (Convergence, 2000: p18;
Financial Mail, 2000b). Thus, mobile commerce is any transaction with a
monetary value that is conducted via a mobile telecommunications network
(Muller-Veerse, 2000: p7). Therefore, as indicated in Circle 2, Figure 3, business-
to-business and business-to-consumer transactions – and not consumer-to-
consumer transactions – are regarded as being part of m-commerce (Muller-
Veerse, 1999). m-Commerce transactions, though, can take place without
networks (Attwood and Duncan, 2000: p10).
m-Commerce also extends to mobile devices used as payment mechanisms as shown
in Circle 3, Figure 3 (Convergence, 2000: p18). Purchases would be charged to
customers’ phone bills as opposed to charging them through their credit card
company. This could be done:
through the use of Bluetooth technology, which enables handheld devices to
communicate with computers (Scientific American, 2000: p43-44); or
COPYRIG
HT U
CT
10
over a network whereby the customer would dial a number when wanting to
execute basic transactions such as purchasing colddrink from vending machines
(Barnett, Hodges and Wilshire, 2000: p5).
In this sense, m-commerce refers to the use of mobile devices as electronic wallets.
Mobile phones would function either as:
debit cards (Attwood and Duncan, 2000: p57). Customers’ bank information
would be stored on the phones’ memory if the phones have smartcard capabilities.
Customers’ transactions would be deducted immediately from their account as and
when they make purchases (Barnett, Hodges and Wilshire, 2000: p5); or
credit cards. Consumers would be billed for transactions on their monthly phone
bills (Fox, 2000: p77).
Thus, for the purposes of this study, m-commerce is defined as:
the use of wireless telecommunication
to or from a handheld device
for transactions for financial gain
whether such communication be conducted over a network or not.
That is, m-commerce is that point at which either Circles 2 or 3 overlaps with
Circle 1.
Figure 3: Diagrammatic definition of m-commerce
Circle 1
Circle 2 Circle 3
Source: Authors’ own
Payment
applications:
Bluetooth
Electronic
wallet
Wireless
communication:
Mobile phones
PDAs
e-Commerce:
Business-to-
business
Business-to-
consumer
COPYRIG
HT U
CT
11
2.2 Eight Forces industry analysis
This study will consider the attractiveness of the industry using Porter’s Five Forces
framework (1980), Grove’s Sixth Force (1988) as well as Hubbard, Pocknee and
Taylor’s (1996) additional two forces: the role of government and the impact of pre-
existing industry structure.
2.2.1 Porter’s Five Forces
Porter’s Five Forces Model is useful in assessing the attractiveness of an industry; that
is, whether there are good prospects for above-average profits (Porter, 1980: p6). An
industry would be considered attractive if it has:
high barriers to entry;
a large number of small suppliers;
a large number of buyers;
few substitutes; and
few competitors, each of whom is content with its position along the industry’s
value supply chain (Hubbard, Pocknee and Taylor, 1996: p105).
In assessing whether the right combination of factors prevails it is useful to consider:
the likelihood of new entrants entering the market;
the bargaining power of suppliers;
the bargaining power of buyers;
the availability of substitutes; and
industry rivalry (Hubbard, Pocknee and Taylor, 1996: pp105-109).
2.2.2 Analysis of Porter’s Five Forces
Porter’s model, while useful in considering the attractiveness of an industry, is
criticised for failing to consider the role of complementors, government as a separate
force and the pre-existing state of the industry (Grove, 1988: p29; Hubbard, Pocknee,
Taylor, 1996: pp110, 113). Moreover, Grove (1988: p30) argues that any one of
Porter’s Five Forces and the role of complementors could become so large as to
disrupt the ordinary functioning of the industry. He refers to such a force as a 10X
COPYRIG
HT U
CT
12
force: so called to suggest that the force has been magnified by a factor of 10. A 10X
force may threaten the continued survival of a business within an industry as it
experiences circumstances and dynamics previously unencountered.
Porter does, in fact, recognise that government impacts on the attractiveness of an
industry through several of the forces. He believes, though, that it is useful to analyse
government’s role through the five forces rather than as a separate force.
Nevertheless, he recognises that in certain instances it may be more useful to treat
government as a discrete force (Porter, 1980: p29). As government plays such an
influential role in the mobile telephony industry and, therefore, the m-commerce
industry, it is considered as a separate force in this instance.
2.2.3 Threat of new entrants
In assessing the threat of new entrants, it is useful to consider the barriers of entry and
potential reaction of existing players. Barriers to entry are created by high capital
requirements, proprietary technology, switching costs and product differentiation
amongst others (Porter, 1980: pp7-10). The transport, basic enabling services,
transaction support, personalisation support and content aggregator segments of the
industry value chain have substantial barriers to entry so limiting the extent to which
new participants could enter the market. Two of these areas are considered below.
High capital requirements raise barriers of entry to potential entrants wishing to
provide transport services. It is expected that DoCoMo will have to spend $10 billion
to establish a 3G network (Kunii, 2000: p25). Furthermore, ongoing network
development costs are high: Vodacom has spent R11.4 billion to date on developing
its network (Bennet, 2000).
Barriers to entry are high in the area of basic enabling services as a result of
proprietary product technology and high switching costs. In order for the various parts
of a system to work together and for the industry to achieve scale, it is better to have
only one architecture at the level of enabling technology. Consequently, companies on
their own or as part of alliances are attempting to establish their architecture as
industry standard and so establish themselves as the ‘gorilla’ within each of the
operating platform areas. Gorillas are companies which have control over proprietary
COPYRIG
HT U
CT
13
knowledge used across the industry and are, therefore, the value chain leaders
(Moore, Johnson and Kippola, 1998: pp44, 48). Qualcomm, for example, is seeking to
become a gorilla in the provision of the underlying standard for high-speed mobile
access to the Internet (The Economist, 2000b). Once standards have been set it is
unlikely that newcomers would be able to introduce alternative standards, as
switching costs would be too high for users of those platforms or enabling
technologies (Moore, Johnson, Kippola, 1998: pp51-52).
Barriers to entry, by contrast, are relatively low for providers of presentation services
and user applications. Much in the same way that content providers on the internet are
easily able to develop web-sites using HTML (HyperText Markup Language), so it
will be possible for content providers to establish their presence on the wireless
internet through the use of WML (Wireless Markup Language) (Barnett, Hodges and
Wilshire, 2000: p2). It is here that newcomers are likely to seek to establish
themselves. While DoCoMo has 600 official content providers, there are thousands of
unofficial ones, enabling subscribers to access up to 16 000 sites on their phones
(Rohwer, 2000: p65). The number of phone-friendly web-sites worldwide, the
majority of which are European and Japanese, ballooned from 15 000 in April 2000 to
2.5m in June 2000 (Wilson, 2000: p50). As a consequence of the low barriers to entry,
competition is likely to be toughest in these areas.
2.2.4 Suppliers
Mobile operators’ suppliers tend to be larger companies, such as Siemens, Alcatel,
Nortel and Lucent, which provide the underlying technology and infrastructure such
as mobile switching units, base station controllers and intelligent network platforms.
Companies such as Computer Configuration Holdings and Dimension Data provide
mobile operators with services such as systems integration. As the suppliers are few
and provide highly specialised services, they have strong bargaining power.
2.2.5 Customers
According to Nokia, there were 340 million mobile users world-wide in the first
quarter of 1999. This figure is expected to rise to 529 million users world-wide in
2002 (Attwood and Duncan, 2000: pp15-16). Furthermore, as mobile phones are
purchased by individuals, operators face a diffused market.
COPYRIG
HT U
CT
14
However, content providers will face a demanding customer base. The volume of
information available to customers and the ease with which they can switch between
content providers, confer power to customers. Those content providers who focus on
time-sensitive information or provide important services such as ticket reservations
will lose customers immediately should they fail to deliver efficiently and effectively.
Operators will, therefore, have to work closely with content providers to ensure that
the content providers are indeed able to deliver their promised services (Attwood and
Duncan, 2000: pp96-97).
2.2.6 Substitutes
Mobile communications currently have the following attributes:
Ubiquity: Communication can take place anywhere independent of the user’s
location.
Reachability: Users can be contacted at any time.
Security: the SIM (Subscriber Identification Module) card provides authentication
of the owner (Muller-Veerse, 2000: pp8-9).
In the future, following the development of GPRS and other enabling technologies,
mobile communications will have additional attributes:
Localisation: The mobile operator will know where the user is physically located
and will be able to customise content dependent on the user’s location.
Instant connectivity: It will be possible to access the Internet without having to
connect a call. GPRS will enable mobiles to remain connected all the time.
Personalisation: The phone will be as specific to an individual as their wallet
(Muller-Veerse, 2000: pp8-9).
As a result of this unique combination of attributes, users will be able to access the
Internet in slices of available time as opposed to having to use chunks of time as is
currently the case when accessing the Internet from computers. As DoCoMo’s i-mode
founder, Enoki, observed: m-commerce is “optimal for killing time or making use of
it” (Rohwer, 2000: p65). The level of convenience and personalisation of mobile
phones for both voice and Internet access has no peer. Thus, there are no substitutes
COPYRIG
HT U
CT
15
for m-commerce. This, though, should not give rise to complacency as the threat of
substitution in high-tech industries does not necessarily come from another existing
product: it comes from further innovations (Moore, Johnson and Kippola, 1998: p41).
2.2.7 Adding to Porter’s Five Forces - Complementors
Grove (1988: p29) defines complementors as those companies who sell products
which work better or work only with other companies’ products. Handset
manufacturers are complementors to mobile operators: mobile telephony would not be
possible without both participants. Complementors have similar interests but could
diverge with the introduction of new technologies. In the case of the development of
m-commerce, though, the two parties continue to work together.
Handset manufacturers, motivated by concerns as to slowing demand for handsets
(The Economist, 2000g: p98), have facilitated the development of m-commerce by
developing enabling technologies. Bluetooth for example was developed as a result of
over 1000 companies, including the handset manufacturers, co-operating (Kahney,
2000: p55; The Economist, 1999: p13). Similarly, WAP (wireless application protocol
– enables non-voice data to be downloaded on mobile phones) was developed by a
consortium of companies, including Motorola, Nokia and Ericsson, all handset
manufacturers, in conjunction with Phone.com, a software company (Bannan, 2000:
p46). Finally, it is believed that after 2001, mobile phone manufacturers will only
produce internet-enabled mobile phones (Muller-Veerse, 2000; p60). As a
consequence of their efforts to stimulate the development of m-commerce,
replacements of mobile phones have overtaken first-time purchases. Moreover, by
2003 it is expected that 80% of mobile purchases will be replacements (The
Economist, 2000g: p98).
2.2.8 Adding to Porter’s Five Forces - Pre-existing industry structure
Part of the m-commerce industry’s attractiveness derives from the attractiveness of
the two key components of the industry: mobile phones and the Internet.
Mobile phones are currently the fastest growing area within the
telecommunications industry. As far back as 1995, annual mobile-phone
connections world-wide exceeded that of fixed lines. Consequently, the
International Telecommunications Union, a United Nations agency, expects the
COPYRIG
HT U
CT
16
number of mobiles to exceed fixed lines by 2001 (The Economist, 1999: p6). It is
estimated that there were 480m mobile users in 1999 ( ITU, 2000: p3). By 2004, it
is expected that there will be over a billion mobile phones in use world-wide (The
Economist, 1999: p1).
The Internet, too has been an enormous success with consumers world-wide. In
1999, there were between 196m (IDC, 2000) and 260m (ITU, 2000: p3) Internet
users world-wide.
It is the rapid success of these two technologies and the manner in which they have
tapped into consumer needs that has led to the high expectations for m-commerce.
Prior to the late 1990s price competition was not an issue faced by mobile operators.
Mobile tariffs were high in the 1980s as supply was limited and in the early 1990s as
demand was such that mobile operators did not need to lower tariffs to attract new
customers (ITU, 1999: p17). Price competition has developed in the late 1990s as a
result of governments permitting additional participants into the industry (Muller-
Veerse, 2000: p9). The Yankee Group estimates that world-wide, the cost of mobile
calls fell by an average of 38% between 1996 and 1999, despite an increase in the
quality of calls over the same period: battery life, radio technology, network capacity,
reception and security all improved (The Economist, 1999: p8). It is believed that
within the next three years, tariffs for mobile telephony will equal that of fixed lines
(Muller-Veerse, 2000: p9).
European mobile operators have seen the average revenue per user (ARPU) fall as a
result of increased competition. In South Africa, by contrast, ARPU has been under
pressure as a result of the changing profile of subscribers – increasing numbers of pre-
paid customers with lower average usage (Szczesniak, 1999: p21). Consequently,
mobile operators have needed to develop new value-added services. This search for
new revenue streams has resulted in pre-existing industry players becoming a 10X
force in the development of the m-commerce industry.
The success of m-commerce will be influenced by the pricing model adopted by
mobile operators for access to m-commerce related services. The pricing model used
by the mobile operators for m-commerce will be influenced either by that currently
used for mobile telephony, access to the Internet or a combination thereof.
COPYRIG
HT U
CT
17
Traditionally, mobile telephone subscribers have paid for calls based on the duration
and destination of calls (Attwood and Duncan, 2000: p94). The pricing model for
access to the Internet, by contrast, is currently one of a flat monthly charge for
unlimited use (Fox, 2000: p80).
2.2.9 Adding to Porter’s Five Forces - Government
Governments have created barriers to entry to the industry by retaining the power to
award radio-wave licences. It is necessary to limit the number of operators so as to
overcome frequency constraints: too many operators would result in frequency
interference (ITU, 1999: p9). However, by limiting the number of participants in an
industry, government prevents new entrants from challenging incumbents. Moreover,
the efficiency with which government has managed radio-waves determines the
ability of the industry to prosper. As European governments have managed their
radio-waves more efficiently than in America, which practically gave them away in
the earlier years of the last century, the industry has established itself more
successfully in Europe (The Economist, 2000c).
An additional way that governments shape the nature of the industry is through the
method by which radio spectrum licences are allocated. The two main methods of
allocating licences are auctions and beauty contests. In the UK and Germany for
example, licences were allocated through auctions where the highest bidder won. In
Finland and Spain, governments chose to award licences through beauty contests,
where licences were awarded to companies that best met the prescribed criteria set by
government. Hong Kong, where radio spectrum is due to be allocated early in 2001,
will use a hybrid of these two methods (Financial Times, 2000e).
Countries which have used auctions as a means by which to allocate radio spectrum
licences have raised substantially more money than those countries which have used
beauty contests. Britain and Germany, for example, have raised $34 billion and
$45.9 billion, respectively, whereas Spain raised only $480 million (Financial Times,
2000d). Some commentators argue, though, that auctions are a damaging tax on
mobile operators and consumers and that the high cost of licences will slow the
deployment of third-generation networks and raise mobile-telephony prices (The
Economist, 2000e). Others believe that auctions have a big advantage over beauty
COPYRIG
HT U
CT
18
contests because they are efficient and allocate licences to those operators who value
them most, rather than to those whom the regulators favour.
2.2.10 Conclusion to Eight Forces industry analysis
Porter’s Five Forces
Threat of new entrants - low as barriers to entry are high: the result of proprietary
technology, government control over radio spectrums and capital investment
requirements.
Customers – weak bargaining power as they are diffused.
Suppliers – strong bargaining power as they are large companies providing highly
specialised services.
Substitutes – none as a result of the unique combination of attributes offered by
m-commerce.
Adding to Porter’s Five Forces
Complementors – a 10X force as handset manufacturers are furthering the growth
of the industry through the development of enabling technology.
Pre-existing industry structure – a 10X force facilitating the industry’s evolution
as mobile operators, having enjoyed strong growth, seek opportunities to boost
ARPU.
Government – influence varies from region to region based on the manner in
which they manage radio-waves and the method used to sell radio-spectrum
licences.
In terms of Porter’s Five Forces, the mobile operators are in a relatively strong
position to the other industry participants, with the exception of suppliers.
Complementors and pre-existing industry structure have played a leading role in
facilitating the development of the industry. Furthermore, on the whole, government
has had a favourable impact on the industry. It can, therefore, be concluded that the
m-commerce industry is attractive. Industry attractiveness, though, is in itself not
sufficient for potential players. The success of a firm within an industry is dependent
on the industry’s overall attractiveness as well as the firm’s position along the
COPYRIG
HT U
CT
19
industry value chain (Lewis, 1999: p10). Therefore, industry participants will want to
identify and then position themselves on the most lucrative segments of the industry’s
value chain.
2.3 Value chain
Each firm within an industry addresses a broad function, which complements the
functions of other industry participants. The industry’s value chain constitutes the
combined set of those functions undertaken by industry participants to create and
deliver value to the ultimate consumer (Lewis, 1999: p7; Porter, 1985: p34). Some
functions performed by industry participants, though, are more lucrative than others.
As economic power has accumulated in the hands of consumers subsequent to the
advent of the Internet, those functions which are closest to the customer are deemed to
be the most valuable (Attwood and Duncan, 2000: p25).
2.3.1 Mobile industry value chain
As players seek to secure the most lucrative segment of the value chain, they are more
likely to compete for positions on the segment closest to the end-users. To date, in the
mobile phone industry the most desirable position along the value chain has been the
handset provider – the position closest to the customer as shown in Figure 4. Network
operators have sought to improve their position on the value chain relative to that of
handset providers – that is, to position themselves closest to customers – by offering
an array of services, such as voicemail, messaging and various billing options
(Attwood and Duncan, 2000: p26).
Figure 4: Mobile value chain
Source: Attwood and Duncan, 2000
Core network
Service providers
Handset device
Customer
COPYRIG
HT U
CT
20
2.3.2 m-Commerce value supply chain
With the development of m-commerce, the operators now have an opportunity to
position themselves closest to customers. Barnett, Hodges and Wilshire (2000: pp1-2)
of McKinsey, Incorporated suggest that the m-commerce industry will face a value
chain consisting of seven links (shown in Figure 5). They are (from the position
furthest from the consumer to the position nearest):
Transport – facilitating data communication between mobile users and application
providers;
Basic enabling services - server hosting, data backup, and systems integration;
Transaction support – billing services and associated security;
Presentation services – converting content to a suitable format;
Personalisation – customisation of the content and presentation;
User application; and
Content aggregators; that is, portals (Barnett, Hodges and Wilshire, 2000: pp1-2).
Figure 5: m-Commerce value chain
Source: Barnett, Hodges, Wilshire, 2000
Mobile operators could compete in any segment along the value chain as:
competition is currently limited;
they have the technical capabilities;
they have sufficient financial resources – as seen by the vast sums paid for 3G
licences;
they have control of wireless infrastructure; and
they have strong brand images.
Barnett, Hodges and Wilshire (2000: p3), nevertheless, argue that rather than spread
their resources too thinly, the operators should compete along those points of the
value chain in which they have a strong competitive advantage as well as those
segments where there is value to be captured. With these criteria in mind, Barnett,
Transport Basic enabling services
Transaction support
Presentation services
Personalisation support
User applications
Content aggregators
COPYRIG
HT U
CT
21
Hodges and Wilshire (2000: p3) have recommended that operators seek to compete in
transport, transaction support, personalisation and content aggregation.
Transport
Mobile operators already have a presence and substantial expertise in transport
provision. Through the expected increase in traffic as a result of the additional data
services, average revenues per user could rise. Japan’s DoCoMo believes that its
revenues are 20% higher with i-mode than they would have been had they just relied
on voice traffic (Rohwer, 2000: p65).
Transaction support
The systems that are currently employed by mobile operators to bill their subscribers
can be leveraged to generate additional revenues by levying a per-transaction charge
to subscribers for goods and services sold by third-party vendors. DoCoMo charges
9% commission on transactions such as ticket ordering (Economist, 2000 11 March).
Similarly, Finnish operator, Sonera, charges its subscribers a commission for
colddrinks purchased from vending machines and charged to their mobile accounts
(Barnett, Hodges and Wilshire, 2000: p5).
Personalisation support
Churn in the cellular industry is as high as 30% in some countries as a result of
marketing and incentives offered by rivals to lure customers (Szczesniak, 1999: p18).
Churn is problematic for operators because of the high set-up costs which are incurred
in connecting subscribers as well as subsidising handsets (in the case of contract
subscribers). Personalisation support will enable mobile operators to raise the cost to
customers of switching. It is the knowledge of personal information about customers
and the dimensions of their phones that makes it possible for operators to dominate
the personalisation segment of the value chain (Barnett, Hodges and Wilshire, 2000:
p4). Once mobile operators tailor the features and content of their offerings,
subscribers will be less willing to switch over to competitors as they will be reluctant
to have their personal details in the possession of several different operators
(Daugherty, Eugster, Roche and Stovall, 1999: p5).
COPYRIG
HT U
CT
22
Content aggregators
Portals are closest to the customer and are believed to be the most lucrative segment
along the value chain. The e-commerce experience has reflected the power that
portals exert. Consequently, the race to establish portals will be the most heavily
contested in the m-commerce industry. Potential portal operators range from mobile
handset manufacturers to mobile operators, from existing Internet portals to new and
unconsidered entities (Attwood and Duncan, 2000: pp63-64; Muller-Veerse, 2000:
pp63-65). A massive opportunity exists here for companies that are able to combine
the content of different web-sites and store these in an easy-to-access format.
Unattractive segments
Mobile operators would be ill-advised to compete in basic enabling service provision
and presentation services - the preserve of hardware and software providers - because
they lack the technical expertise demanded in this area. Further, as operating in either
of these two areas does not enable participating companies to ‘own’ the customer,
they are unlikely to prove to be highly profitable niches (Daugherty, Eugster, Roche
and Stovall, 1999: p6). It is argued that the provision of user applications is an
unattractive option for mobile operators as it is possible for content providers to
establish their presence on the wireless Internet in the same way that they have done
so on the Internet and as user applications tend to be developed by dedicated
companies (Barnett, Hodges and Wilshire, 2000: p2).
2.3.3 Conclusion to value chain
As carrying voice and data traffic is becoming increasingly commoditised, the mobile
operators must avoid becoming merely a conduit between the user and the Internet
(Attwood and Duncan, 2000: pp31, 53). They need to migrate to more lucrative
segments of the value chain. The mobile operators face a choice: either to continue in
their current role as voice transporters or to develop new roles which enable them to
launch themselves on a new growth curve. That is, the mobile operators face an
inflection point (The Economist, 2000g: p98). An inflection point is that point on the
organisational lifecycle where the organisation faces the opportunity of growing or
declining (Stockport, 2000: p46). This is shown as point A in Figure 6. The m-
commerce industry offers the mobile operators an opportunity to enjoy further
growth. Beyond point A, the mobile operators will lose the chance to proactively take
COPYRIG
HT U
CT
23
control over their destiny. If they fail to pursue the new opportunities, they may well
experience a decline (shown as point B in Figure 6).
Figure 6: Organisational lifecycle
Source: Stockport, 2000
2.4 Strategic manoeuvring
Should the mobile operators be proactive and choose to pursue the new opportunities
offered by m-commerce, they will need to undertake various strategies to secure their
position along the most lucrative segments of the industry value chain and to
overcome the uncertainty associated with emerging industries.
2.4.1 Emerging industries
An emerging industry is one that has been created as a result of technological
innovations, changes in cost relationships, changing socio-economic factors or the
development of new needs (Porter, 1980: p215). New industries may be categorised
as low- or high-tech, with high-tech industries characterised by considerable
technological barriers to entry. These barriers are the result of:
a high level of research and development to gain critical mass;
high technological uncertainty; and
a shortage of personnel with the requisite level of technological knowledge
(Calori, 1990; pp22-23).
Time
A B
COPYRIG
HT U
CT
24
Most new industries cannot be defined purely as low- or high-tech as technological
barriers vary along a continuum. Nevertheless, the use of the distinction is useful as
the issues facing low- and high-tech emerging industries differ (Calori, 1990; pp23-
24). As the m-commerce industry is considered to be high-tech – the underlying
technology is sophisticated and there is a high level of technological uncertainty
associated with it – it is worthwhile to consider the industry’s development in the
context of a model appropriate for high-tech emerging industries. Such a model is the
technology adoption life cycle.
2.4.2 The technology adoption lifecycle
The technology adoption lifecycle, shown in Figure 7, is a model for understanding
the acceptance of new products, particularly when the products require a significant
change to modes of behaviour or modifications to other products or services (Moore,
1991: p11).
Figure 7: The technology adoption lifecycle
Source: Moore, 1991
As shown in Figure 7, the market consists of innovators, early adopters, early
majority, late majority and laggards. Innovators and early adopters, who are
enthusiastic adopters of new technology, account for 16% of the market: not sufficient
a number to ensure a new product or service will achieve lasting success. Early
adopters seek to implement new technology before others so as to gain a competitive
advantage. They are willing to accept the discontinuity between the old ways and the
COPYRIG
HT U
CT
25
new caused by the introduction of the new technology as they are seeking a
breakthrough, not continuous improvements (Moore, 1991: pp21, 34). The early
majority, which accounts for 34% of the market, consists of pragmatic people who are
comfortable with technology. They wish to gain productivity improvements for their
existing operations with a minimum amount of disruption. “They want evolution, not
revolution” (Moore, 1991: p21). The early majority is concerned as to which standard
will prevail as the industry standard or whether the new product or service will gain
widespread adoption or not; that is, they face technological uncertainty (Porter, 1980:
pp216; 222).
Technological uncertainty raises the buyer’s perception of the risks associated with
purchasing the product or service (Porter, 1980: pp216, 222). To overcome the
technological uncertainty, the early majority relies on recommendations from other
members of this group in making purchases. However, as the new technology has not
received widespread acceptance, the early majority does not receive any such
recommendations. Moreover, as the early adopters and early majority have different
profiles, the early majority does not accept recommendations from early adopters. The
discontinuity in product acceptance between the early adopters and the early majority
is known as the ‘chasm’ (Moore, 1991: pp20-21).
2.4.3 The Chasm
Before encountering the chasm, though, new products need to cross a ‘crack’ between
the innovators and early adopters (see Figure 7). The crack represents a slight but
important distinction between innovators and early adopters: innovators will try new
products because of their enjoyment of technology while early adopters require the
new product to impart a new benefit (Moore, 1991: p18). It is not expected that m-
commerce will fall into the first crack as it fulfils a real need not met by other
products: it enables people to access the Internet and conduct payment transactions
while mobile. If the new technology is to gain widespread acceptance, though, it is
necessary that it crosses the chasm. This phenomenon can be seen with the
introduction of mobile phones. Prior to mobile phones reaching a 15-20% penetration
of the market, they were regarded as pricey toys for business people. Once they
reached the crucial mass – that is, the chasm had been crossed – mobile telephony
COPYRIG
HT U
CT
26
took off rapidly (The Economist, 1999: p6), with market penetration increasing by at
least 10% per year, thereafter (Szczesniak, 1999: p13).
The number of m-commerce users is projected to grow from six million in Europe and
America in 2000 (www.jupitercommunications.com, 2000: p1) to 600 million world-
wide in 2004 (Price, 2000). If this projection is to be realised, mobile operators and
other industry participants will need to cross the chasm. The European m-commerce
industry is likely to fall into the chasm, though, before reaching the other side:
industry commentators expect that disillusionment with m-commerce will develop in
2001 and only in 2002 will the industry begin making strides in gaining widespread
adoption (Attwood and Duncan, 2000: p20; Muller-Veerse, 2000: p13). This
disillusionment is the result of growing disenchantment with WAP, the technology in
which European industry participants have put much faith. WAP is slow and
expensive to use, and, most damagingly, it has failed to deliver what its promoters
have claimed: that it is the Internet on mobile phones (Fox, 2000: p84; Wilson, 2000:
p50).
If m-commerce in Europe were to avoid dying in the chasm, it is necessary that
industry participants focus on execution and effective implementation of the promised
technologies (www.jupitercommunications.com, 2000: p2), as well as finding ways to
encourage the early majority to utilise its offerings. Successfully crossing the chasm
necessitates meeting the needs of customers at the frontier of the early majority
(Moore, Johnson and Kippola 1998; pp29, 31). Japan’s DoCoMo succeeded in
making the transition across the chasm and so gained widespread use: in excess of 10
million of Japan’s 60.2 million mobile users, are m-commerce subscribers (Financial
Times, 2000b). The company’s success was partially the result of its focus not on
technology but on providing customers with what they wanted: rich content (Rohwer,
2000: p67). DoCoMo also provides a lesson to European mobile operators in that it
developed its offerings using simple, non-WAP technology (Fox, 2000: p84).
In addition to meeting customers’ expectations and fulfilling their needs, competing
companies participating in an emergent industry must work together to promote the
new technologies and products associated with that industry, despite their desire to
COPYRIG
HT U
CT
27
pursue their own interests independently of one another (Porter, 1980: p230). This
combination of co-operation and competition is known as co-opetition.
2.4.4 Co-opetition
It is sometimes necessary for a company to co-operate with its competition and
compete with its suppliers - referred to as substitutors and complementors,
respectively by Brandenburger and Nalebuff (1996: pp60-61). As competitors within
an industry are mutually dependent, there are occasions when they need to co-operate
with one another. The motivations for co-operating with competitors include the need:
to avoid detracting from an industry’s attractiveness. Some kinds of competitive
behaviours could result in the industry becoming less attractive. Price wars, for
example, are unstable and could result in the industry’s overall profitability being
undermined (Porter, 1980: p17).
to promote an emergent industry to ensure its long-term viability (Porter, 1980:
p230).
to overcome limited resources, such as finances, depth of management or
capabilities (Jonash and Sommerlatte, 1999: pp26-27). By working together,
resource-constrained companies are able to leverage available resources (Hamel
and Prahalad, 1994: pp163-174).
Such industry or intrafirm co-operation can take place on four levels as shown in
Table 1 (Jonash and Sommerlatte, 1999: pp26-27).
Table 1: Levels of co-operation
Level of co-operation Degree of co-operation
Level four co-operation Informal exchange of knowledge and information about
a new area
Level three co-operation Formation of structures to monitor new trends or
developing technologies
Level two co-operation Facilitation of emergence of new products or services
resulting from new technologies or trends
Level one co-operation Mutual defence of their successful products against
competition
Source: Jonash and Sommerlatte, 1999
COPYRIG
HT U
CT
28
The alliances formed to support the development of Symbian and WAP are examples
of level two co-operation: industry participants banded together to bring promising
new technology to fruition. Ericsson, Motorola, Matsushita and Nokia, who
collectively manufacture 58% of the world’s mobile phones, backed Psion’s Symbian.
Symbian’s EPOC is an operating standard which would enable mobile phones and
palmtops to communicate with one another. This alliance was driven by the desire to
prevent Microsoft’s Windows CE from becoming the industry standard (Muller-
Veerse 2000: p27). Should Microsoft attempt to establish Windows CE as the
industry standard, the backers of Symbian may display level-one co-operation to
maintain Symbian’s dominance (Jonash and Sommerlatte, 1999: p27).
This is not the only example of co-opetition in the industry. SIM (subscriber
identification module) smartcards have facilitated data applications by providing an
interface between handsets and mobile operators. If SIM smartcards were allowed to
become the industry standard, providers of smartcards would have created a new
source of value between handset manufacturers and mobile operators. The handset
vendors, who ordinarily compete with each other to sell their hardware to customers,
were prompted by their concern as to the possibility of a new function on the value
chain to co-operate in developing WAP and so protect their turf (Attwood and
Duncan, 2000: p38).
In the same manner in which hand-set manufacturers have co-operated with one
another and other industry players to promote the growth of the emergent industry and
to limit the development of competition, so it will be necessary for the mobile
operators to co-operate with other industry participants in order to acquire the core
competencies required to compete in some of the segments proposed by Barnett,
Hodges and Wilshire. The mobile operators lack the necessary skills, such as fraud
detection and dispute resolution, required for providing transaction support (Fox,
2000: p81). They also lack the capabilities, such as selecting, customising and
aggregating contents, required as content aggregators (Daugherty, Eugster, Roche and
Stovall, 1999: p7).
COPYRIG
HT U
CT
29
In some instances, such co-operation will be regarded as co-opetition. Credit card
companies, concerned about the threat mobile operators pose to them in terms of their
ability to provide transaction support, are working with mobile operators to develop
mobile phones which can be used as transaction devices while maintaining the credit
card companies as billing agents. (Attwood and Duncan, 2000: p54). In other
instances, though, such co-operation will be an attempt by the mobile operators to
gain access to the skills of others; that is, the mobile operators will aim to borrow
resources (Hamel and Prahalad, 1994: pp163-181). One way in which mobile
operators could establish a portal, would be to form an alliance with an existing
Internet portal such as Yahoo! (Barnett, Hodges and Wilshire, 2000: p4).
2.4.5 Gorilla company
Assuming an industry makes the transition across the chasm, it could be expected that
companies would pursue niche markets within the frontier of the early majority.
Market growth is niche by niche, with the successful companies leveraging their skills
and knowledge acquired in the previous niche. Should companies fail to move beyond
their niches and mass adoption of a particular technology is never achieved, then the
market may evolve into what can be called ‘bowling alley forever’. However, should
a dynamic develop that the entire market rushes to adopt the new technology, the
market would experience hypergrowth, which is known as the tornado (Moore,
Johnson and Kippola 1998; pp29-32).
Out of the tornado emerges a ‘gorilla’ company. A gorilla company is one that
emerges as the overwhelming market leader following the first surge of random mass-
market adoption of any new technology (Moore, Johnson and Kippola 1998; p33). In
terms of the ‘Law of Increasing Returns’ – which applies only to knowledge-based
industries – the market leader tends to extend its lead while other companies tend to
fall further behind. Following the mass-market adoption of the new technology,
software and hardware companies develop and manufacture further applications and
products, which further entrenches the market leader’s position. As the market
leader’s position is entrenched so the switching costs to customers rise, leading to the
market leader becoming more powerful (Arthur, 1996: pp3-6). Industry participants
and customers effectively adopt a single company’s architecture as the industry
standard: this company becomes the gorilla. The gorilla secures control of the value
COPYRIG
HT U
CT
30
chain and is able to influence the future direction of the market (Moore, Johnson and
Kippola 1998: pp37, 44).
Those companies in the industry which failed to become the gorilla either become
chimps or monkeys. Monkeys copy the gorilla’s technology and sell their product at a
discount to the gorilla’s price. As they are cloning products, they have no competitive
advantage and are, therefore, vulnerable to the gorilla capturing their customers.
Chimps are companies which failed to become gorillas but as they invested heavily in
their own architecture, their technology is incompatible with that of the gorilla. They
have two choices. Either to compete directly with the gorilla for that status or to focus
on a niche market in an attempt to become a local gorilla within a niche (Moore,
Johnson and Kippola 1998: pp54-55).
Figure 8: DoCoMo: A gorilla emerges
0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
February-99 June-99 October-99 February-00 June-00 October-00
Su
bsc
rib
ers
Source: www.nttdocomo.com
DoCoMo has achieved gorilla status through the success of i-mode – its version of the
wireless Internet – as shown in (Figure 8). One reason for DoCoMo’s success is its
provision of content to attract customers to its portal. Once sufficient customers
supported the portal, other content providers entered the market. This additional
content provision attracted even more customers, thus the company entered a virtuous
cycle (Attwood and Duncan, 2000: p114). Furthermore, i-mode technology facilitates
COPYRIG
HT U
CT
31
easy access to the Internet because its phones are always on and content is
downloaded faster as programmes are written in WML, a stripped-down version of
HTML (Rohwer, 2000: p64). The company has 80 - 90% of the Japanese m-
commerce market and, as shown in Figure 8, its subscriber base has grown rapidly
and is expected to reach 17 million by the end of the year (Rohwer, 2000: p64). The
success of i-mode may displace WAP as an industry standard if i-mode were to be
rolled out beyond Japan’s borders (Allard, Young, McAteer and Wigder, 2000: p2).
2.4.6 Conclusion to strategic manoeuvring
The gorilla company, through its overwhelming market dominance, stands to profit
handsomely. Subsequent to the tornado which lasts three to five years, the market
moves to ‘Main Street’. Main Street represents a transition from hyper-growth to a
slower growth. Attention is focused on variations to standards to enhance their
application (Moore, Johnson and Kippola, 1998: pp35-39). As the gorilla remains
indomitable and as Main Street is long, the mobile operator which attains gorilla
status during the tornado phase of the m-commerce industry’s technology adoption
lifecycle stands to make extra-ordinary profits during its lifetime. It can, therefore, be
expected that the mobile operators will face fierce competition once the chasm has
been crossed and the new technology adopted by the mass-market.
2.5 Conclusion to the literature review
In terms of Porter’s Five Forces (1980), the mobile operators are in a relatively strong
position to the other industry participants, with the exception of suppliers. Moreover,
the two 10X forces, complementors (Grove, 1988) and pre-existing industry structure
(Hubbard, Pocknee and Taylor, 1996), are both facilitating the development of the
industry. However, the success of a firm within in an industry is dependent on the
firm’s position along the industry value chain in addition to the industry’s overall
attractiveness (Lewis, 1999: p10). Barnett, Hodges and Wilshire (2000) propose an m-
commerce industry value chain which comprises of several segments. While they
argue that the mobile operators could compete along all segments of the value chain,
they suggest that the mobile operators should compete along four: one of which,
transport, they currently compete on.
COPYRIG
HT U
CT
32
As the m-commerce industry is nascent, technological uncertainty facing the industry
is high. Industry participants will need to work together to overcome the uncertainty
facing the industry (Porter, 1980). Through this co-opetition (Brandenburger and
Nalebuff, 1996), mobile operators will improve the likelihood of the industry crossing
the chasm, so making the transition from the early adopters to the early majority
(Moore, 1991). Once the industry crosses the chasm and so achieves widespread
adoption, aggressive competition amongst mobile operators will ensue as each
operator seeks to become the industry’s gorilla within their chosen segments (Moore,
Johnson and Kippola, 1998). Those operators which become gorillas stand to make
superior profits. The risk, though, is high: some mobile operators will merely attain
chimp status. The battle lines are drawn. The race is on.
COPYRIG
HT U
CT
33
3 Research methodology
The research aspect of the study was primarily qualitative. It sought to establish the
scope of the industry’s development, some of the players in the South African m-
commerce industry and the strategies that the players might pursue. The study made
extensive use of primary data, obtained through:
desk research,
e-Mailed surveys and
interviews.
Secondary data sources were obtained through extensive desk research.
Aside from the data obtained through the desk research, all referencing refer to the
manner in which data was obtained; for example, whether data was gleaned from
surveys, telephonic interviews or interviews.
3.1 Desk research
Desk research considered:
Theories related to industry attractiveness, the m-commerce value chain, co-
opetition, and technology adoption lifecycle amongst others. The theories used
were obtained from primary sources; that is, the original authors’ work.
The development of the m-commerce industry in Western Europe and Japan as an
aid to developing a scenario for the industry in South Africa. Information was
sourced from local and international newspapers and journals, such as Fortune,
Scientific American, The Economist and The Financial Times. As the industry is in
its infancy, there is a dearth of books and reports which discuss developments
within a theoretical framework. Consequently, this study has quoted extensively
from two particular reports. They are:
Mobile Commerce: Strategies for the new business Paradigm by R Attwood
and S Duncan; and
Mobile Commerce Report by F Muller-Veerse.
COPYRIG
HT U
CT
34
The South African mobile operators, their strategies and the issues with which
they have been grappling. This information was sourced from local newspapers
and business magazines, such as Business Report, Engineering News and
Financial Mail, as well as equity analysts’ reports.
While the bulk of the data gathered through desk research was of a secondary nature,
primary data was obtained by accessing companies’ web sites. Data was obtained in
this way on companies such as MTN and Fundamo.
3.2 Survey
3.2.1 Mailed survey
The data collection method was survey-based, which was useful for capturing data on
attitudes, knowledge and perceptions. The target population consisted of the top six
telecommunications industry analysts as rated by the Financial Mail (Financial Mail,
2000a: p18). The Financial Mail annually polls stockbrokers’ institutional clients as to
who they regard as being the best analysts in their sector. The criteria used include:
the quality of research in terms of content and value;
the accuracy of forecasts;
consistency throughout the preceding year; and
the effectiveness of communication (Financial Mail, 2000a; p28).
The analysts and the companies for which they currently work are shown in Table 2
(Financial Mail, 2000a; p18).
As the Financial Mail only names the top six analysts, the survey was restricted to
these highly-regarded individuals. The survey, therefore, was equivalent to a census
as every member of the target population was polled (Easterby-Smith, 1993: p122).
As leading analysts, they would have a good knowledge of the industry, emerging
technologies, industry players and their strategies.
The purpose of the survey was to:
establish their perceptions of the attractiveness of the local m-commerce industry;
identify potential industry participants and where they are likely to position
themselves on the industry value chain; and
COPYRIG
HT U
CT
35
To establish which m-commerce applications are likely to gain widespread
acceptance.
Table 2: Rated telecommunications analysts
Analyst Company
Craig Tate ING Barings Southern Africa Limited
Franca di Silvestro HSBC Simpson McKie (Pty) Ltd
Vaughan Henkel Warburg Dillon Read
Sunil Varghese Deutsche Bank
Rob Bezuidenhout CLSA
Andre Szczesniak ING Barings Southern Africa Limited Source: Financial Mail
Questionnaires were e-mailed to participants. The advantages of using an e-mail-
based survey include the increased speed of delivery and the ease with which
participants can respond (Wegner, 2000: p21). The disadvantage, though, is the
associated low response rate (Wegner, 2000: p21). Easterby-Smith (1993: p125)
quotes an example whereby a questionnaire distributed within an organisation
garnered a 50% response rate. To increase the likelihood of a one hundred percent
response rate, all the analysts were contacted in advance, the purpose of the survey
was explained to them and permission was obtained to include them in the survey.
Despite taking these measures and repeated requests for returns three of the six
analysts failed to return completed surveys.
In developing the questionnaire, extensive referrals were made to the stated aims of
the research report and the underlying theory of the literature review to ensure the
relevance, appropriateness and usefulness of the questions See Appendix A). The bulk
of the questions on the mailed survey were open-ended to ensure richness of data and
free expression of views (Easterby-Smith, 1993: p120). A disadvantage associated
with open-ended questions, though, is the difficulty in tabulating and analysing
responses (Wegner, 2000: p23).
COPYRIG
HT U
CT
36
One of the respondents was emailed a pilot questionnaire, enabling the researchers to
assess the internal consistency of the questionnaire and the clarity of the questions
(Wegner, 2000: p28). On receipt of the pilot questionnaire, it was noted that a few
questions had not been answered. Attempts were made to discuss this with the
respondent and to obtain feedback. The respondent refused to take phone calls, citing
work pressures. It is suggested that these questions were left unanswered because the
questions touched on issues the respondent had not previously considered: not
because of problems inherent in the questionnaire. As time was running short, and as
the researchers felt that the questionnaire was a robust one, it was decided to email the
survey to the remaining analysts.
Subsequent to the development of the research proposal where it was suggested that
the analysts would be surveyed using only a mailed survey, it was decided that it
would be beneficial to follow up the responses to the e-mailed survey with a
telephonic interview. Telephonic interviews, it was felt, would enable the researchers
to obtain clarification as to the respondents’ replies, to glean additional information
and to add depth to the responses. Two of the three survey respondents were
amenable to being polled telephonically. Each of the interviews was of about half-an-
hour’s duration.
3.2.2 Interviews
Leading industry participants were interviewed using semi-structured questions to:
establish their perceptions of the attractiveness of the local m-commerce industry;
identify where on the industry value chain their companies hoped to position
themselves;
identify their companies’ competitive strategies;
establish which m-commerce applications were likely to gain widespread
acceptance; and
elicit possible scenarios of the future development of the m-commerce industry.
An interview guide (See Appendix B) was developed to ensure that the interviews
would remain focused and constructive. In developing the interview guide, referrals
were made back to the stated aims of the research report and the underlying theory of
COPYRIG
HT U
CT
37
the literature review to ensure the relevance, appropriateness and usefulness of the
questions. The format was semi-structured so that the major issues were addressed
while not excluding the opportunity to gain insight into issues that had not been
previously considered (Easterby-Smith, 1993: p120). Moreover, interview guides
were tailored to accommodate the available time and to place the emphasis on the area
in which the stakeholder has greatest expertise. Interview guides were emailed or
faxed to interviewees ahead of the interview, enabling them to consider the issues in
advance.
It was originally intended to have face-to-face interviews with executives from the
two South African mobile phone operators, MTN and Vodacom, responsible for new
business development for their respective companies and, therefore, involved in
crafting m-commerce strategies, on their business trips to Cape Town. The executives
later informed the researchers that Cape Town-based interviews would not be
possible; thus, the researchers arranged to conduct the interviews in Johannesburg. As
the bulk of industry participants are located in Johannesburg, the researchers decided
it would be opportune to interview a broader range of industry stakeholders.
Nedcor was approached as it was the first company to offer a WAP-based application
to the South African market and the second bank internationally to offer mobile
banking services (Wood, 2000: p79). Exactmobile.com, owned by the local distributor
of Nokia handsets, was approached as it is regarded as the country’s most successful
WAP service (Wood, 2000: p80), and, as a portal, it is located on that segment of the
value chain which is expected to be most heavily contested (Attwood and Duncan,
2000: pp63-64; Muller-Veerse, 2000: pp63-65). Motorola was approached as the
company is both a leading handset manufacturer as well as a supplier of the
underlying cellular telephony technology. Furthermore, the company’s representative
is currently working on his doctorate in 3G technology, making him one of the most
highly qualified individuals in this field in the country. Table 3 shows the
interviewees, the companies they represent and the length of the interviews.
COPYRIG
HT U
CT
38
Table 3 : Interviewees
Name Company Stakeholder role Length of interview
Karen Drop Senior Manager – Electronic Banking
Nedmobile User applications: mobile banking
1.5 hrs
Dennis Magaya Business Development Manager – GPRS/UMTS
Motorola Handset manufacturer
1.5 hrs
Francis Malema Assistant Director – Multimedia
Department of Communications
Government 1.0 hrs
Sam Michel Group Executive for e-Business
MTN Mobile operator 2.0 hrs
Gavin Penkin Head of South African Operations
Exactmobile Content aggregator
1.5 hrs
Pambos Soteriades Executive Head of Business Development Division
Vodacom Mobile operator 1.5 hrs
Total time spent in interviews 9 hrs
3.3 Limitations of the study
Due to the infancy of the industry, the literature on m-commerce is limited. Research
generated thus far is prohibitively expensive and is not widely available in local
academic libraries; hence, it was not possible to gain full exposure to the knowledge
accumulated to date.
The failure of all the chosen analysts to respond to the questionnaire imposed a
limitation on the study as a wider range of views may have been elicited.
3.4 Cost considerations
The cost of the study is shown in Table 4. The main expense item was the cost of two
tickets to Johannesburg, where industry participants were interviewed over a two-day
period.
COPYRIG
HT U
CT
39
Table 4 : Cost breakdown
Description Amount
Airfare to Johannesburg R2 832
Travel R 135
Telephone interviews R 90
Photocopying and printing R 300
Total R3 357
3.5 General lessons learnt
3.5.1 Data capture
As the study focused on establishing the status and development of the m-commerce
industry in South Africa, the survey was geared towards the collection of qualitative
data. Consequently very little quantitative data was collected. It is, therefore, not
possible to draw lessons from their use.
3.5.2 Comparative analysis of telephonic and face-to-face interviews
Of the three methods used, face-to-face interviews yielded the richest data as:
Appointments were made. As appointments were made in advance of the face-to-
face interviews, the participants blocked off time to discuss the industry dynamics.
They therefore did not feel pressured to move onto other issues and were able to
devote their attentions to the discussion. While telephonic interviews were easy to
initiate, they were brief as the participants had not blocked off the time as no
appointment was made. As they needed to address other work demands, responses
were shorter and there was less opportunity to delve into greater detail on areas of
interest.
Respondents could be observed. As respondents could be observed, the
researchers could respond to cues to probe deeper or move on to further questions.
COPYRIG
HT U
CT
40
Trust was established. As trust was established during the course of the interview,
respondents were forthcoming with information as the interview progressed. They
were also more candid than they might have otherwise been and were amenable to
follow-up calls for additional information or clarification.
COPYRIG
HT U
CT
41
4 Findings
Through the use of surveys and interviews, data was garnered from analysts and
industry participants, which reflected the South African m-commerce industry’s
attractiveness and the critical positions along the industry’s value chain which
participants believe the mobile operators will pursue. The ultimate success of the
industry, though, will be determined by whether this new technology will gain
widespread adoption. Accordingly, three scenarios were developed based on the
respondents’ vision of the future. Each scenario considered the role of government
and mobile operators in determining whether the industry will fail or succeed in
gaining widespread adoption. Before discussing the industry’s dynamics, it is
worthwhile to consider the analysts’ definition of m-commerce.
4.1 Definition of m-commerce
There is widespread consensus as to a definition of m-commerce. Industry analysts’
definitions include: “business to consumer commerce via a mobile network” (Survey
– Bezuidenhout); “any transaction with monetary value which is transacted over the
mobile telephony environment” (Survey – Henkel); and, most succinctly, “transacting
over mobile phones” (Survey – Varghese). Common to the definitions is the notion of
m-commerce being a means of transacting via wireless technology with mobile
devices. This is in keeping with the definition as proposed in Section 2.1, page 8.
4.2 Eight Forces industry analysis
In section 2.2, page 11, the attractiveness of the m-commerce industry was assessed
using Porter’s Five Forces (1980), Grove’s Sixth Force (1988), the role of government
and the impact of pre-existing industry structure (Hubbard, Pocknee and Taylor,
1996). It was felt that Grove’s Sixth Force - the role of complementors - and the pre-
existing industry structure were 10X forces. That is, complementors and the pre-
existing industry structure were exerting a disproportionate influence on the
emergence of the industry and its overall attractiveness. In South Africa, by contrast,
it is felt that the pre-existing industry structure and government are the 10X forces.
COPYRIG
HT U
CT
42
This section considers each of the Eight Forces, with the exception of competitive
rivalry, which is considered in greater depth in Section 4.3, page 57.
4.2.1 Threat of new entrants
The South African telecommunications industry is on the verge of witnessing an
increase in competition. Consequently, the industry is likely to see a number of new
participants in the coming years. At the end of 1999, the regulatory authority at the
time, the South African Telecommunications Regulatory Authority (SATRA)
announced the winner of the third mobile phone licence, Cell-C. Companies which
failed to win the licence claim the selection process was marred by irregularities.
Consequently, the case has been adjourned to court (The Economist, 2000c). At the
time of writing, the issue had not been resolved as there is a lack of clarity as to which
regulatory authority has final jurisdiction in this matter. It is expected that the issue
will be resolved within the next year (Interview – Malema). Moreover, it is possible
that the government will extend a fourth mobile licence in the short- to medium-term
(Interviews – Malema, Magaya).
Expectations of the third mobile operator’s market share over the next three years are
largely muted, as shown in Table 5, as the third mobile operator will be facing
competition from the cash-rich incumbents (Telephonic interview – Varghese).
Furthermore, MTN and Vodacom have secured the first-tier subscribers, who are
affluent, tech-savvy and tend to be heavier users (BMI-TechKnowledge, 2000: p419).
Should the incumbents be granted access to the 1800MHz band in advance of the
third operator, then the “third operator’s bargaining power will be lost”, so
encumbering its potential performance further (Interview - Magaya). Varghese, in
calculating his figures, assumed that the third mobile operator would capture 20% of
net market additions to achieve market share of 8.8% in its third year of operations.
At the more optimistic end of the forecasts is Bezuidenhout, who expects the third
operator to enjoy market share of 10-19% by its third year of operations as the advent
of competition with the introduction of the third operator will serve to stimulate the
growth of the industry.
COPYRIG
HT U
CT
43
Table 5 : Projected market share of third mobile operator
First year Second year Third year
Rob Bezuidenhout <10% <10% 10 – 19%
Greg Brady 3% Not provided 5%
Vaughan Henkel <10% <10% <10%
Sunil Varghese 4.3% 6.9% 8.8%
Sources: Surveys – Bezuidenhout, Henkel, Varghese; Standard Equities 2000
However, Knott-Craig, Chief Executive of Vodacom, believes the optimal period for
a new mobile operator to enter the market has passed as a result of the ongoing delays
(Bennet, 2000). The longer the delays, the less willing banks will be to extend finance
to the ultimate licence holder – it will cost close to R4bn to establish its network - as
the incumbents will have:
signed up more customers in the interim; and
secured market share in data provision: an area in which the third provider was
originally expected to have faced a level playing field (Interviews – Drop,
Soteriades; Szczesniak, 1999: p17).
Added to these woes, the third mobile operator may be required to focus on extending
mobile services to currently under-serviced rural areas. This is an onerous coverage
requirement as the capital expenditure per subscriber will be higher as the
communities are widely dispersed (Interview – Soteriades).
While not of immediate consequence to the m-commerce industry, the emergence of a
second landline operator is worth considering as it will be of relevance when
considering the strategies of the mobile operators. In 2003, a second landline operator
will begin operations (Interview – Malema). The skeleton of the second landline will
be created from the telecoms arms of Denel, Eskom and Transnet, all existing
government parastatals (Bidoli, 2000a: p101). The introduction of competition in this
sector is likely to place price pressure on fixed-line tariffs as well as serve to stimulate
the provision of innovative products and services by the fixed-line operators. As
Telkom is allied to Vodacom through its 50% shareholding, alliances could be formed
between MTN or the third cellular operator with the second fixed-line operator
(Interviews – Magaya, Malema). It is more likely that the second landline operator
COPYRIG
HT U
CT
44
would form an alliance with MTN as Transnet would have substantial interest in both
Bidoli, 2000b).
4.2.2 Suppliers
The South African mobile operators are in a weak position relative to their suppliers
as their network infrastructure needs are met by a small number of firms which
provide their services and products to the world’s leading operators – both fixed and
mobile. Motorola supplies two-thirds of Vodacom’s base stations, while Alcatel
supplies the remainder. Siemens supplies Vodacom with switches. All of MTN’s
network and technology requirements are met by Ericsson (Interview – Magaya). The
leading handset suppliers in South Africa are Nokia, Ericsson, Motorola, Alcatel and
Siemens.
4.2.3 Customers
The development of m-commerce will be constrained by some of the characteristics
of the South African market. These characteristics include:
the lack of awareness of the possibility of m-commerce as well as of the
functionality provided by handsets. For example, Markinor found that as many as
30% of Capetonians are unaware of short messaging services (SMS): the starting
point for m-commerce (Interview – Soteriades);
technophobia. People are scared of using computers (Interviews – Magaya,
Michel, Soteriades);
a large number of functionally illiterate people (Interview – Michel, Soteriades);
and
a large lower-income population, which has little need for the advanced data
services offered by m-commerce (Survey – Bezuidenhout).
Therefore, if m-commerce were to succeed, it would be necessary for the industry to
educate users (Interview – Soteriades).
On the positive side, the youth market (defined as those between the ages of 18 and
25) has been found to be ready adopters of m-commerce as they are comfortable with
mobile phones and SMS (Interviews – Drop; Penkin). Moreover, youth purchases of
mobile technology is growing rapidly (Interview – Drop).
COPYRIG
HT U
CT
45
South African mobile subscribers are increasingly gravitating towards the use of pre-
paid option as opposed to contracts. Ninety percent of all new subscriptions are pre-
paid subscribers and the majority of subscribers are now pre-paid customers (Brady,
2000: p2). The shift to prepaid users could pose a stumbling block to the development
of m-commerce as the bulk of pre-paid customers are lower-end consumers and,
therefore, may not be able to afford the advanced services offered (Telephonic
interview – Bezuidenhout).
Analysts and industry participants have widely differing perceptions as to which
applications and functions will be well-received and the pace with which functions
will be adopted, as shown in Table 6 and Table 7. Most industry participants believe
that mobile financial services will be a successful area, while they are not as
optimistic as to the prospects of mobile information provisioning and entertainment.
The individual areas are discussed in greater depth below.
Table 6: Expected successful m-commerce applications
Drop Magaya Malema Michel Penkin Soteriades Mobile financial servicesMobile shopping Mobileinformation provisioningMobileentertainment Source: Interviews
COPYRIG
HT U
CT
46
Table 7: Likely pace of adoption of m-commerce applications
V. Rapidly Rapidly Moderately Slowly Mobile financial services
Mobile banking 2 1 Mobile broking 1 2 Mobile cash 1 2 Mobile payment 1 1 1
Mobile shopping Mobile retailing 1 1 1 Mobile ticketing and reservations 1 2
Mobile information provisioning Text messaging 2 1 News provisioning 1 1 1
Mobile entertainment Mobile gaming 2 1 Mobile music 3
Source: Surveys - Bezuidenhout, Henkel, Varghese
Mobile financial services
Mobile financial services are regarded as the killer application, although it is felt that
this area is not being sufficiently promoted (Interview – Penkin). The analysts
surveyed were more optimistic as to the take-up of mobile banking and mobile cash as
opposed to mobile broking (Table 7). Mobile banking includes making electronic
payments to account providers, transfers between accounts, and account enquiries
(Interviews – Drop, Michel).
Mobile money would be useful for making smaller transactions (Interview –
Soteriades). To this end, government is currently seeking to embed a chip on SIM
cards which would facilitate micro-payments – such as payment of taxi fare. If this
succeeds, the use of mobile phones for micro-payments would be high (Interviews –
Drop, Malema). Both government and the Reserve Bank view the use of mobile
phones for financial transactions favourably as they feel that mobile financial services
will provide the previously under-banked segment of the population access to
financial services (Interview – Drop; Department of Communications, 2000: p63-64).
The Reserve Bank, though, would prefer mobile phones to work as debit cards as
opposed to credit cards so limiting the growth of consumer credit (Department of
Communications, 2000: p64). It is expected that mobile cash could be a reality within
COPYRIG
HT U
CT
47
a year (Interview – Michel). If mobile financial services are to succeed, it is necessary
that transactions be executed in real time (Interview - Drop).
Mobile shopping
Some industry participants feel that mobile shopping would be successful:
“transactions would be small and of an impulsive nature” (Interview – Penkin).
Industry analysts felt that mobile ticketing and reservations would be better received
than mobile retailing (Table 7). Mobile retailing is likely to fail as:
it cannot replicate the human aspect of shopping; and
50% of customers are lost when they have to work through a new page when
making an Internet transaction. This problem is compounded when using mobile
phones (Interview – Michel). The challenge for the industry is therefore to provide
the user with a “one-button purchase experience” (Engineering News, 2000).
Mobile information provisioning
Of all the applications, analysts are most upbeat as to the pace with which South
African consumers would adopt text messaging (Table 7). This has been borne out by
the pace at which consumers have signed up with MTNsms.com, MTN’s text
messaging Internet site: 16 000 per day. Further, 750 000 messages are sent from that
site daily (Interview – Michel).
News provisioning was viewed less favourably as there is no demand for time-
sensitive information in South Africa (Table 7) (Telephonic interview - Varghese).
Information and services should be community focused, whether that community be
defined by culture, religion or shared sporting interests. If information is provided for
communities of users, then that information is important and, therefore, of use
(Interview – Michel). The information must be real-time and local, enabling
consumers to act on information received (Interview – Drop).
Mobile entertainment
Mobile gaming could be rapidly adopted by South African consumers for three
reasons (Table 7). Firstly, the populace’s enthusiasm for the lottery combined with the
development of micro-payment mechanisms, as discussed under ‘Mobile financial
COPYRIG
HT U
CT
48
services’, page 46, could result in the use of mobile phones for gaming enjoying
strong success (Telephonic interview – Varghese). Spending on the lottery and mobile
phones have transformed the South African consumer patterns. It is expected that
R1.1 billion will be spent on the lottery in 2000. Moreover, the lottery is expected to
appeal especially to the lower income group as tickets are so affordable (Kruger,
2000: pp6-7). Secondly, it is argued that mobile entertainment would be a successful
m-commerce application as South Africa has a rapidly growing youth market,
(Interview – Magaya). Finally, it is argued that mobile entertainment will be
successful as “people want fun” (Interview – Penkin). Purchasing and downloading
ringing tones is currently a popular selling item (Interviews – Michel, Penkin).
Industry analysts were least optimistic as to the prospects of mobile music (Table 7);
however, some industry participants saw strong potential in this area provided it
would be affordable (Interview – Penkin; Telephonic interview – Varghese). If mobile
entertainment is to succeed, though, it is important that it be personalised, localised
and bespoke (Interview – Michel).
Other
As security concerns in South Africa are high, tracking services could be a successful
m-commerce application (Interview – Michel). None of the analysts surveyed
identified other applications which would be well received by the market.
4.2.4 Substitutes
In keeping with Moore, Johnson and Kippola’s (1998: p41) admonition that the threat
of substitution in high-tech comes from further innovations, interviewees were asked
what potential new technologies could supersede m-commerce. None was identified.
4.2.5 Adding to Porter’s Five Forces - Complementors
As mentioned previously, after 2001, mobile handset manufacturers will only produce
Internet-enabled mobile phones (Muller-Veerse, 2000; p60). The handsets
manufacturers have sought to facilitate the development of m-commerce as it
provides them with a means to increase handset sales in addition to giving them a new
way in which to interface with customers. Furthermore, as the handset manufacturers
are anxious that the applications reside on the handset and not on a server, they have
been driving the development of the industry to protect their interests (Interview –
COPYRIG
HT U
CT
49
Magaya). South Africa stands to benefit from the international trend towards the
development of Internet-enabled phones and all phones sold in this country will soon
have the necessary capabilities to facilitate m-commerce transactions via the Internet.
4.2.6 Adding to Porter’s Five Forces - Pre-existing industry structure
It is often remarked upon that m-commerce is the product of two rapidly growing
industries: mobile telephony and the Internet.
Mobile telephony
The South African mobile telecommunications market is currently regarded as the
fastest growing mobile market in the world (Interview – Drop). As of the end of 1999,
there were some 5.3 million subscribers (ITU, 2000). There are currently roughly 7.6
million subscribers: Vodacom has 4.1 million subscribers while MTN has 3.5 million
(Interview – Soteriades). Vodacom’s market share is larger than MTN’s as Vodacom
enjoyed a lead over MTN in establishing its infrastructure (Brady, 2000: p3; Interview
- Michel). Nevertheless, MTN has increased its market share from 32% in 1995 to
44% currently (Brady, 2000: p3).
There appears to be two schools of thought as to the saturation level in South Africa.
One school argues that saturation will occur once penetration reaches between 35 –
40% (Bennet, 2000; Brady, 2000: p2; Kruger, 2000: p6). Another believes that
saturation will occur once mobile penetration reaches 20 – 25% as a result of limited
disposable incomes (Interview – Magaya; Szczesniak, 1999: p12). The rate at which
the market will grow, too, is subject to widely differing impressions. Knott-Craig
gives different numbers in different interviews: in one he suggests 300 000 to 400 000
new subscribers are joining the industry per month, in another he states 100 000
(Bennet, 2000; Van der Kooy, 2000: p15).
The tendency of the mobile operators, though, to announce the number of subscribers
signed up as opposed to net subscriptions – that is, taking into account the impact of
churn – results in the numbers being overstated (Brady, 2000: p2). BMI-
TechKnowledge estimates that new cellular subscribers are joining at the rate of
100 000 per month; ABN Amro suggests that 200 000 subscribers are joining per
month; and Standard Equities estimates monthly net subscriptions to be between
COPYRIG
HT U
CT
50
150 000 and 220 000 (BMI-TechKnowledge, 2000; Szczesniak, 1999: p10; Brady,
2000: p2).
Part of the success of mobile telephony in South Africa is a consequence of the failure
of Telkom, the fixed operator, to provide wide access to telephones: there are only 4.6
million landline connections (Szczesniak, 1999: p6). Mobile phones are, therefore, a
substitute for landlines in South Africa, as is the case in many other developing
countries, as opposed to being a complementary telecommunications tool which is the
case in many developed economies (Szczesniak, 1999: p11). Analysts, on the whole,
seem to feel that the rate at which the industry is growing is likely to slow down as
shown in Table 8.
Table 8: Penetration growth expected to slow
2001 2002 2003
Rob Bezuidenhout 10% 15% 20%
Vaughan Henkel 4.3% Not provided Not provided
Sunil Varghese 10% 17% 12%
Sources: Surveys – Bezuidenhout, Henkel, Varghese
By contrast, market participants expect the market to continue growing at its current
strong rate. As the third provider will result in increased competition, prices are
expected to fall (Interview – Magaya; Szczesniak, 1999: pp17-18). Mobile telephony
will, therefore, become cheaper so attracting those who were previously unable to
afford phones (Interviews – Magaya, Malema). Factors constraining growth of the
industry, though, include economic growth and network capabilities (Interview –
Penkin). Network capabilities refers to the concerns as to whether the incumbent
mobile operators have sufficient bandwidth. This issue is discussed in greater detail
under ‘ Allocation of spectrum’, on page 53.
Although the mobile operators’ total revenue is expected to continue rising (see
Figure 9), average revenue per user (ARPU) is under pressure in South Africa as
mobile operators pursue the lower-end of the market (Interview – Penkin). ARPU is
expected to come under further pressure as real prices – if not nominal prices – are
COPYRIG
HT U
CT
51
expected to fall once the third mobile operator commences operations (Interview –
Michel; Szczesniak, 1999: p17). m-Commerce will provide mobile operators with an
opportunity to increase ARPU as:
people use SMS for relay chatting;
the youth market becomes more sophisticated in their usage of m-commerce
applications;
lower spenders adopt the usage of SMS; and
additional voice calls are made in response to data applications (Interviews –
Magaya, Michel, Penkin; Szczesniak, 1999: p21).
However, as Soteriades believes the size of the South African m-commerce market to
be limited, he maintained that m-commerce revenues were unlikely to make a
substantial impact on the falling ARPU.
Figure 9: Mobile operators' revenue
0
5
10
15
20
25
30
35
1999 2000 2001 2002 2003
R b
illio
ns
Actual revenues Projected revenues
Source: Standard Equities
The Internet
It is estimated that there were some 1.8 million Internet users in South Africa in 1999
and that there will be 2 million users by 2002 (BER, 2000: p5; ITU: 2000). The
industry enjoyed strong growth – 500 000 new subscribers in 1999 – until recently but
this growth is slowing down as demand for personal computers is close to saturation
(BER, 2000: pp5-6). Few South Africans are able to afford computers: only 16% of
COPYRIG
HT U
CT
52
the population earn more than R42 000 per year, while 37% of the economically
active population is unemployed (BER, 2000: p4).
The growth of Internet usage is further limited by the relatively high cost of Internet
access: consumers are charged a monthly subscription fee by their service providers
while Telkom charges for time spent on the Internet. By contrast, European
consumers have free access to the Internet and American consumers are not even
charged for the cost of the call (BER, 2000: p4).
Mobile phones as a means of accessing the Internet
In countries with low Internet and credit card penetration, mobile phones could play
an important role (Fox, 2000: p80). In Japan, fewer than 12% of the population has
access to the Internet. Accordingly, DoCoMo correctly deduced that i-Mode would
become the main way in which people would access the Internet (The Economist,
2000a: p85). Similarly, it is argued that many South Africans will experience the
Internet through their mobile phones as they are cheaper than computers (Interview –
Soteriades; Planting and Bidoli, 1999: p91), and will find their mobile phones to be a
useful means of payment – particularly for micro-payments (Interviews – Drop,
Malema, Soteriades). It has been suggested that in 18 months time, the value of m-
commerce transactions will exceed the value of e-commerce transaction (Interview –
Drop).
4.2.7 Adding to Porter’s Five Forces - Government
The government’s priorities in the telecommunications arena are:
promoting universal access to services and the protection of consumers’ interests;
ensuring technical standardisation and efficient use of frequency spectrum;
empowering the historically disadvantaged; and
promoting competition and economic development (SATRA, 1999: pp3-4;
Interview - Malema).
Accordingly, government has focused on the control of new entrants, the allocation of
spectrum impact and regulating the practices of mobile operators so as to protect the
interests of consumers. However, as the industry is monitored by a weak regulator the
COPYRIG
HT U
CT
53
control of new entrants and allocation of spectrum has been mismanaged (Surveys –
Bezuidenhout, Henkel, Varghese).
Licensing of new entrants
The government mishandled the awarding of a third mobile operator’s licence. Two
of the losing bidders have accused the regulatory authority of awarding the licence to
a company which they felt did not have the required technical expertise and the matter
is presently before the courts (The Economist, 2000c). There are two broad
ramifications of the mismanagement of the licensing process.
First, the third operator’s licence was to have been awarded through a beauty
contest. However, as a result of the failure of the beauty contest, future licences
are likely to be awarded through the use of an auction or a hybrid (Interview –
Malema). If a hybrid were to be used, the two most important criteria that
government would be likely to apply would be the provision of universal access
and that the candidate company is a black empowerment vehicle (Interview –
Malema). However, it is argued that auctions are inappropriate as they could
undermine the affordability of the licence to the winning investor, and as the
limited size of the South African market would make it difficult for the winner to
recoup its investment (Survey – Henkel; Telephonic interview – Bezuidenhout).
Second, investor sentiment is likely to be harmed (Survey – Henkel; Telephonic
interview - Varghese).
Allocation of spectrum
Industry participants are of the view that government has not managed the allocation
of spectrum efficiently nor has it been customer-centric (Di Silvestro, 2000: p5;
Interview – Michel: Telephonic interviews – Bezuidenhout, Varghese). SATRA
invited applications from the incumbents for access to the 1800MHz band in early
2000 (Sharon, 2000: p63). As MTN and Vodacom believe that they will soon run out
of capacity on the 900MHz band, they duly responded (Sharon, 2000: p63). They are
concerned that the failure to obtain increased bandwidth will result in an increase in
the number of dropped calls and the number of attempts needed to connect a call
(Interviews – Michel, Soteriades). As Vodacom has been inefficient in its allocation
COPYRIG
HT U
CT
54
of phone numbers (Stones, 2000a), there is doubt as to whether the incumbent
operators are really constrained by a lack of capacity (Interview – Magaya).
The Independent Communications Authority of South Africa (ICASA) (successor to
SATRA) argues that the congestion experienced by the operators could be overcome
through the use of upgradeable 900MHz equipment. However, the mobile operators
contend that the required technology is too expensive (Interview – Soteriades).
Furthermore, government is withholding access as it feels the ability of the third
cellular operator to compete will be compromised if it were to allow the incumbents
access to the 1800MHz band (Di Silvestro, 2000: p4). It has been suggested, though,
that government is preoccupied with the issues surrounding the granting of the third
mobile- and second fixed-operator licences, and has, therefore, not focused on the
issues surrounding the incumbents’ need for increased bandwidth (Interview –
Malema).
In the light of the government’s decision not to grant access to 1800MHz band,
mobile operators will have to make more efficient use of existing bandwidth; that is,
they will need to find ways to allow customers to make calls without using the full
channel (Interview – Michel). Nevertheless, government has been criticised for
treating the bandwidth as a “national treasure” and not as the commodity it is (Survey
– Bezuidenhout)
Imposition of additional conditions
Government has displayed a tendency to impose additional conditions when awarding
licences. When the original licences were awarded, Vodacom and MTN were required
to provide community telephone services in under-serviced areas. Moreover, they
were required to pay a yearly charge equivalent to 5% of their yearly operating
income (Szczesniak, 1999: p4). It has been suggested that government would grant
the incumbents access to the 1800MHz band in exchange for increased social
responsibility obligations (Interview – Soteriades). The third mobile operator, too will
be faced with additional conditions: it will be required to extend coverage into the
rural areas (Interview – Soteriades).
COPYRIG
HT U
CT
55
Uncertainty as to issues relating to m-commerce
While government has issued a green paper on e-commerce (which was only issued in
November 2000), it has no policy documents relating to m-commerce. m-Commerce
is regarded as a micro-policy making area within the broader field of e-commerce.
Discussions with government yielded conflicting comments. When Mr Malema was
questioned on government’s policy as to the emergence of different standards, he
stated that government would not allow for different standards. Yet, he later stated
that government would not use its regulatory powers to impose uniform standards on
the operators even if the standards used were to diverge as a result of innovation, but
would instead make recommendations to industry participants (Interview - Malema).
This is of concern for the mobile operators as it adds uncertainty to an area already
fraught with them.
Industry liberalisation expected
While industry participants expect government intervention to remain high
(Interviews – Magaya, Soteriades), government argues that the level and nature of
regulation will change. It expects to be less involved in regulating the industry as its
role would be to balance access to mobile communication services between urban and
rural communities as well as to ensure the affordability of services (Interview –
Malema). A reduction in government intervention in the forthcoming years is likely,
as:
There will be more competition is the telecommunications field as Telkom’s
monopoly in the provision of fixed-line services will have ended by 2003
(Interview – Malema); and
South Africa is a signatory to the World Trade Organisation, which requires that
telecommunications markets be liberalised by 2007 (Creamer, 2000). While this
milestone is outside of the boundaries of this report it is useful to bear it in mind
as it will inform stakeholders’ strategies.
COPYRIG
HT U
CT
56
4.2.8 Conclusion to Eight Forces industry analysis
Porter’s Five Forces
Threat of new entrants - Moderate force. The m-commerce industry faces the
prospect of additional competition as a result of the awarding of a third mobile
and second fixed licence. While the entrance of a third operator may not be good
news for the incumbents, the new entrant is expected to stimulate further industry
growth.
Suppliers - Strong force. The industry’s infrastructure requirements are met by a
small number of specialist, multinational firms with dominant roles in the world-
wide telecommunications industry.
Customers – Weak force. The customer base is a dispersed one, however, the
operators will struggle to promote the new applications as the market is
technophobic and relatively uneducated.
Substitutes – Weak force. m-Commerce, itself an emerging technology, faces little
threat from the advent of alternative technologies; that is, the industry currently
has no substitutes.
Adding to Porter’s Five Forces
Complementors – The industry’s development is being aided by the enthusiasm
handset manufacturers have exhibited due to their need to stimulate handset sales
and their hopes of developing handsets capable of making the wireless Internet a
reality.
Pre-existing industry structure - This is a 10X force. A large part of the industry’s
attractiveness stems from pre-existing industry factors: the extraordinary success
that mobile telephones have enjoyed in South Africa as well as the relatively low
level at which Internet saturation is expected to occur. These two factors, which
are similar in profile to many European countries, combine to increase the
attractiveness of the industry.
COPYRIG
HT U
CT
57
Government – This is a 10X force encumbering the industry’s development.
Government has handled the mobile communications industry ineptly. Its
inconsistency and lack of clarity as to its policy direction with regard to m-
commerce are of concern.
On the basis of the five forces analysis, the South African m-commerce industry is
attractive. The considerable strength of suppliers is offset by the weak remaining
forces, resulting in an attractive industry for mobile operators to participate in. The
industry is made more attractive by the enthusiasm demonstrated by the industry’s
complementors in facilitating the industry’s development and the pre-existing
industry structure: commentators optimistically project mobile penetration to reach
40% before levelling off while Internet penetration is expected to remain fairly low.
However, the industry is beset by the way government has played its role. While some
industry participants see government playing a smaller role in future, it still has a long
way to go before the uncertainty regarding policy-making is overcome. The overall
picture, though, is a positive one, albeit not as promising as that in Europe, which in
turn is not as attractive a market as is the Japanese market.
4.3 MTN and Vodacom
4.3.1 Company backgrounds
Both Vodacom and MTN were awarded their licences in October 1993. Vodacom,
though, was the first to launch its network. Consequently, Vodacom was able to build
a lead over MTN and has consistently held the larger market share (Brady, 2000: p9).
Table 9 is useful for establishing some of the more pertinent information about MTN
and Vodacom.
The two companies enjoy different customer profiles. Vodacom is strong in the rural
and black markets. This is the result of the firm’s successful Yebonet campaign,
which established the company as the people’s operator. Nevertheless, Vodacom is
also strong at targeting corporate customers. Vodacom also has the higher proportion
of contract subscribers (Survey – Henkel; Brady, 2000: p9). Pre-paid consumers,
COPYRIG
HT U
CT
58
though, are not all lower-end consumers. Many customers opt for the pre-paid option
as it offers them alternative payment methods (Interview – Penkin). MTN’s market is
“younger, more urbane” and, therefore, more innovative (Interview – Michel).
Table 9: Company profiles
MTN Vodacom
Major shareholders Johnnic Holdings: 36.8%
Transnet: 24.1%
Telkom: 50%
Vodafone: 31.5%
Turnover (March 2000) R5 929m R9 666m
Earnings before interest and
tax
R1 369m R2 328m
Subscribers 3.5m 4.1m
Market share 46% 54%
Number of employees
(March 2000)
2 600 4 500
Lines per employee 1 346 911
Licence granted October 1993 October 1993
Length of licence 15 years 15 years
Network launched June 1994 March 1994
Standard GSM 900 GSM 900
African operations Cameroon, Rwanda,
Swaziland, Uganda
Lesotho, Tanzania
Source: Brady, 2000; www.m-cell.co.za, 2000; Szczesniak, 1999
4.3.2 Organisational cultures
The findings indicated that the two companies have different organisational cultures.
MTN is regarded as the more enterprising of the two mobile operators (Interview –
Soteriades). Its staff are innovative, talented and believe strongly in m-commerce
(Survey – Henkel; Telephonic interview – Varghese). It has been suggested that as
many of Vodacom’s senior management are former Telkom employees, a parastatal
organisation, its staff are less aggressive than those of MTN (Interview – Drop).
COPYRIG
HT U
CT
59
As MTN is perceived as being the “more mature organisation”, it is believed that it
would be more willing to co-operate with other companies and to pursue and adopt
the ideas of middle managers (Interview – Soteriades). In co-operating with other
companies, MTN is more likely to form alliances as it is the more entrepreneurial of
the two operators (Interview – Drop): alliances are easily formed and dissolved with
relatively little disruption to operations (Interview – Magaya). MTN views alliances
as an opportunity to acquire best of breed technologies (Interview – Michel).
Vodacom, by contrast, would prefer to form joint ventures as it “expects greater
loyalty from its partners” and is more averse to risk (Interview – Drop). Vodacom
expects alliances or joint ventures to be mutually beneficial so that the company can
gain knowledge and skills (Interview – Soteriades). This should not be read to suggest
that the two companies are averse to acquisitions, though: both MTN and Vodacom
have acquired their mobile service providers, such as M-Tel and Teljoy respectively
(Survey – Henkel; Telephonic interview – Bezuidenhout; Computing SA, 2000).
4.3.3 Approaches to m-commerce
MTN and Vodacom are criticised for lacking vision in the m-commerce field as they
are said to be focused on maintaining their networks (Interview – Penkin). MTN,
though, is the more advanced of the two companies in the m-commerce field (Survey
– Bezuidenhout, Henkel, Varghese), as it has been more focused on and “willing to
experiment with m-commerce” (Interview – Soteriades). MTN has benefited from its
association with the Johnnic group, a multimedia company (Survey – Bezuidenhout),
and Vodacom’s wait-and-see attitude towards m-commerce (Interview – Penkin;
Telephonic interview – Varghese). Vodacom maintains it “has bigger priorities than
m-commerce” (Interview – Soteriades). The company’s attention is being distracted
by pressing operational issues, which include:
its perceived need to obtain additional bandwidth; and
organisational restructuring, which has resulted in changes in senior management
and the loss of good technical staff (Interviews – Drop, Penkin).
Vodafone, owner of 31.5% of Vodacom’s shares, is positioning itself as a content
provider and aggregator. In order to avoid duplication in applications development, it
has constrained Vodacom from aggressively pursuing m-commerce opportunities
COPYRIG
HT U
CT
60
(Interview – Michel). This is a missed opportunity for Vodafone as South Africa is an
“ideal test market as the mobile market is growing rapidly while the market is smaller
than those of European countries” (Interview – Drop). Nevertheless, should m-
commerce take off, Vodacom would be able to quickly close MTN’s lead as it would
be able to leverage off Vodafone and its customer base, more weighted to contract
subscribers, are likely to adopt m-commerce applications more rapidly than MTN’s
(Interview – Michel; Survey – Henkel, Varghese).
In keeping with the two companies’ different approaches to m-commerce, MTN, the
more enterprising player, proposes to position itself on five of the segments of the
industry’s value chain, while Vodacom, the more restrained company, intends to
restrict itself to three of the segments (see Table 10).
Table 10: Operators' proposed m-commerce roles
MTN Vodacom TransportBasic enabling services Transaction support Presentation service Personalisation support User applications Content aggregation Source: Interviews – Michel, Soteriades
4.4 m-Commerce value chain
While Barnett, Hodges and Wilshire (2000: p3) propose that the m-commerce
industry value chain consists of seven links, as discussed in Section 2.3.2, page 20,
they suggest that the mobile operators pursue only four of the segments: namely
transport, transaction support, personalisation support and content aggregation. As
shown in Table 10, the roles envisaged by the operators are different from that
suggested by Barnett, Hodges and Wilshire (2000: pp3-5). Neither of the operators
propose competing in personalisation support, a segment Barnett, Hodges and
Wilshire (2000: p3) view favourably, while both intend providing user applications: a
segment which Barnett, Hodges and Wilshire (2000: p5) felt was best left untouched.
COPYRIG
HT U
CT
61
While all survey and interview respondents agreed that the mobile operators ought to
continue providing transport services, analysts and industry participants have widely
differing views as to the other roles that the mobile operators ought to pursue along
the industry value chain (see Table 11). Two of the three analysts felt that mobile
operators ought to pursue as many positions as possible. The other analyst and
industry participants took a less aggressive view on the roles the mobile operators
ought to assume, with most in favour of transaction support and content aggregation.
Again, personalisation support was viewed dimly despite the appeal of that segment
by Barnett, Hodges and Wilshire (2000: p3). In keeping with Barnett, Hodges and
Wilshire’s (2000: p5) views most respondents were averse to the mobile operators
assuming basic enabling service provisioning.
Table 11: Analysts and industry participants proposed m-commerce roles for operators
Bezuidenhout Drop Henkel Magaya Penkin Varghese TransportBasic enabling services
TransactionsupportPresentationservice
Personalisationsupport
User applications ContentaggregationSource: Interviews and surveys
Each of the segments on Barnett, Hodges and Wilshire’s (2000: p3) m-commerce
industry value chain, shown below in Figure 10, is discussed in greater depth below.
The relevant segment and the preceding and subsequent segments are shown next to
the heading of each section for the reader’s ease of use. Under each heading, issues
around existing competitive advantage, required core competencies and current
activities and developments are explored.
COPYRIG
HT U
CT
62
Figure 10: m-Commerce value chain
Source: Barnett, Hodges, Wilshire, 2000
4.4.1 Transport
Currently, the mobile operators compete in the transport segment of the value chain.
Transport provision is becoming increasingly commoditised with little opportunity for
the mobile operators to differentiate their services; therefore, they should diversify
into other value-adding segments (Interviews – Magaya, Soteriades). Failure to do so
would limit the operators’ long-term viability (Planting and Bidoli, 1999: p91). Some
industry participants, while recognising the need for the mobile operators to move
beyond transport, suggest that mobile operators should wait for the current hype and
uncertainty surrounding the industry to pass before they start to position themselves
along the value chain (Interview – Penkin).
While the mobile operators have sufficient resources to compete along all segments of
the value chain (Survey – Varghese), they ought to be careful about doing so as they
lack the skills required to compete successfully in many of them (Interview – Michel).
The mobile operators, in getting involved in segments of the value chain such as
personalisation support, presentation support, content provision and aggregation, will
have moved away from pure wireless telecommunication functions to media-related
activities (Interviews – Penkin, Soteriades). Should they wish to compete along these
segments, they may need to form alliances with companies in possession of the
necessary skills (Interview – Soteriades).
Transport Basic enabling services
Transport Basic enabling services
Transaction support
Presentation services
Personalisation support
User applications
Content aggregators
COPYRIG
HT U
CT
63
4.4.2 Basic enabling services
Currently, the underlying enabling technology for accessing the internet from mobile
phones, outside of Japan, is WAP (wireless application protocol). WAP has been
criticised for attempting to put a personal computer on a mobile phone and, therefore,
requires bandwidth (Interview – Michel). WAP, though, is merely an intermediary
technology and will be replaced with the introduction of 2.5G technology, which
offers similar functionality to 3G technology. 2.5G technology consists of:
General Packet Radio Service (GPRS), which will enable phones to remain
connected all the time; and
Enhanced Data Rates for Global Evolution (EDGE), which will enable more rapid
transmission of data (interviews – Penkin, Soteriades).
Both of the technologies are expected to be in place within the next eighteen months
(Interview – Michel). MTN is currently conducting GPRS pilot studies (Interview –
Penkin) and it is expected that GPRS will be launched in the first half of 2001
(Interviews – Drop, Michel). Another technology expected to be introduced to South
Africa next year is Bluetooth (interview – Drop), which will enable mobile phone
owners to make short-range payments on their phones while users will be able to
make long-range payments using WAP-based applications – discussed further in the
next section (Interview – Penkin).
The technology associated with 3G is expensive and as the local market is small,
charges would be too expensive for the market to achieve widespread adoption
(Interview – Soteriades). Thus, it is unlikely that 3G technology will be introduced
into South Africa within the next five to eight years (Interview - Penkin). Moreover,
the business case for 3G networks is unproven, thus mobile operators are nervous to
invest in the necessary infrastructure (Interview – Malema). Market participants
concur that South Africa should leverage its existing technology rather than upgrade
to 3G technology (Interviews – Drop, Magaya, Malema, Michel, Penkin, Soteriades).
The South African mobile operators, it is maintained, have basic enabling service
capabilities (Survey – Henkel; Telephonic interview – Varghese). MTN has displayed
Transport Basic
enabling services
Transaction support
COPYRIG
HT U
CT
64
its competency in developing its own proprietary enabling technology, Remote
Interactive Voice Response (RIVR) which is based on Interactive Voice Response
(IVR) technology – an open standard (Interview – Michel). MTN has succeeded in
selling this technology to an Italian mobile operator, Wind, and intends to sell RIVR
to other operators (Business Report, 2000b). However, while they are likely to adopt
server hosting functions, it will probably be only for their own applications and
content (Interview – Drop).
Basic enabling services provide the operators with an opportunity to differentiate
themselves, particularly through the development of proprietary applications. While
the mobile operators will share standards in many areas, they will also develop
proprietary applications, such as MTN has done with RIVR (Interview – Michel).
However, it is argued that the operators should develop open standards as this would
minimise the risk related to widespread adoption and infrastructural costs. Instead of
competing in the basic enabling services, operators should compete in value-added
services (Interview – Soteriades). MTN is pursuing a competitive advantage through
proprietary technology. Vodacom, by contrast, is seeking greater co-operation with its
main competitor. If this were to occur, it would be an example of co-opetition in the
South African context.
4.4.3 Transaction support
Transaction support entails the provision of billing and associated security services
(Barnett, Hodges and Wilshire; 2000: p2). In competing in this segment, the operators
will be challenging the banks on their own turf (Survey – Bezuidenhout, Henkel,
Varghese). Mobile operators already possess some of the required competencies to
provide billing services (Survey – Bezuidenhout, Henkel). For example, the billing
engine capability of the mobile operators is a strength: while MTN had turnover of
R6 billion for the financial year ended March 2000, the average amount billed to
customers monthly was R250 (Interview – Michel). Furthermore, the mobile
operators have acquired credit management capabilities subsequent to acquiring their
allied mobile service providers (Gordon, 2000; Telephonic interview –
Bezuidenhout).
Basic enabling services
Transaction support
Presentation services
COPYRIG
HT U
CT
65
Four key layers in providing transaction support are (from the customer to back office
functions):
Transaction initiation;
Transaction authorisation;
Transaction fulfilment; and
Clearing and settlement (Interview – Drop).
The mobile operators are keen to secure those functions towards the customer and
expect the banks to remain in transaction fulfilment and clearing and settlement: the
low-value activities. MTN, the more aggressive m-commerce player, wants to provide
the top three layers, while Vodacom is content with just transaction initiation
(Interview – Drop). In order to provide the transactions support services the mobile
operators would need to develop or acquire skills related to resolving the associated
risk. These include the need for:
digital signatures/certification,
non-repudiation, and
tracking of payments (Interview – Drop; Survey - Varghese).
The banks – ABSA, Boland, Firstrand, Nedcor, Saambou and Standard Bank – wary
of being relegated to low-margin functions are hoping to influence m-commerce and
have, therefore, established a forum, the South African Wireless Payments Group,
with the mobile operators and the card associations. This forum is considering five
different payment architectures for adoption in South Africa (Interview – Drop).
If the operators were to profit from transaction support, it would be necessary that
they be able to establish the value of the transactions conducted using their data
stream, so enabling them to earn commission. Finance houses are expected to attempt
to prevent and pre-empt the mobile operators from establishing the value of
transactions transmitted through their data streams (Interviews – Penkin, Soteriades).
Consequently, Sanlam, a financial giant, is backing Fundamo, which intends to
provide a payment platform based on open architecture, which will allow account
holders to make mobile-to-mobile payments, Internet-to-mobile payments and
mobile-to-point-of-sale payments. The company intends generating revenue by
COPYRIG
HT U
CT
66
charging a commission on all transactions generated by the payment platform
(www.fundamo.co.za; Interview - Drop).
4.4.4 Presentation services and personalisation support
Personalisation is crucial as people need fast access to their desired content on the
Internet when using their mobile phones (Interview – Penkin). Presentation services
require competencies better suited to public relations and media companies
(Telephonic interview – Bezuidenhout), while personalisation support require skills
related to customer and database management (Survey – Henkel). However, as the
mobile operators lack these skills, they ought not to undertake activities related to
presentation services and personalisation support. If the mobile operators choose to
offer content aggregation services, then they ought to outsource these functions. It
would be necessary, though, that they retain a strong influence over both these
services as customers’ experience of their portal will be strongly influenced by the
look and feel of the site (Interviews – Magaya; Telephonic interview –
Bezuidenhout).
4.4.5 User applications
User applications refers to the provision of content and applications currently
available on the Internet (Barnett, Hodges and Wilshire; 2000: p2). Although content
is important (Planting and Bidoli, 1999: p91), the provision of content is not attractive
to mobile operators as it would require them to acquire or develop editorial skills: an
area which they do not understand (Interviews – Michel, Soteriades). Further,
conflicts of interests may arise; for example, it would be difficult to provide content
for both NuMetro and SterKinekor (Interview – Penkin).
While the provision of content is not attractive to mobile operators, the provision of
user applications is, contrary to Hodges, Barnet and Wilshire’s model (2000: p5). In
the past, operators have focused on providing the necessary technology presented and
Transaction support
Presentation services
Personalisation support
User applications
Personalisation support
User applications
Content aggregators
COPYRIG
HT U
CT
67
have, therefore, presented call-packages to customers without establishing their needs.
If they were to establish themselves as providers of user applications, it would be
important for them to adopt a customer, rather than technology, focus (Interview –
Michel). They will also need to develop product management skills. Consequently,
they will need to restructure themselves so that they move away from an engineering
to a marketing focus. (Interviews – Drop, Magaya).
As mentioned above, the technology through which users can currently access the
Internet is WAP: one of the fastest growing technologies (Business Report, 2000a:
p7). In order to access WAP-based functions, the user will require a WAP-enabled
device and Internet access (Wood, 2000: p79). Moreover, it is expensive to use as call
charges are high and connection times long (Wood, 2000:79; Interview – Drop).
These factors will limit the extent to which WAP-based functions will be adopted in
South Africa.
Despite the drawbacks of WAP, several companies have developed WAP-based
applications. Sanlam has developed an application whereby users can access
information on healthcare providers, Siemens has launched a shopping application,
known as WAP Intershop and Nedbank has launched a WAP-based mobile banking
application, NedMobile (Business Day, 2000; Engineering Report, 2000; Business
Report, 2000a). NedMobile was the first WAP-based application introduced in South
Africa (Wood, 2000: p79).
The provision of mobile banking services is one example of a user application that
operators are keen to provide (Interview – Michel). However, to provide mobile
banking services would require the operators to obtain banking licences: a move
already attempted by both (Interview – Penkin; Wood, 2000: p79). The big four banks
have some four million customers: equivalent to the number of subscribers that
Vodacom currently has. Thus, if Vodacom were to assume banking functions it would
be larger than all the big banks put together (Interview – Soteriades). The banks,
aware of mobile operators’ desire to disintermediate them as well as the threat this
poses to their long-term prospects, are determined not to be made redundant.
Accordingly, the banks are developing m-commerce applications, although such
COPYRIG
HT U
CT
68
applications will serve to complement their existing electronic banking services rather
than replace them (Interview – Drop; Wood, 2000: p79).
While Nedmobile is a WAP-based application, ABSA and Standard Bank have
focused on developing applications based on wireless internet gateway (WIG)
technology in conjunction with MTN. WIG offers the same functionality as WAP
(Interview – Soteriades), but differs in that the application is transferred to the SIM
card as opposed to remaining on the server as is the case with WAP (Interview –
Drop). This enables the transaction to be conducted on mobile phones which have not
been WAP-enabled but will limit these services to MTN customers only (Interview –
Drop). Moreover, customers need to purchase a new SIM card, a process which can
be time consuming and difficult (Interview – Drop, Penkin).
4.4.6 Content aggregation
Content aggregation is an attractive segment for the mobile operators as it offers them
the opportunity to differentiate their services and own the customer (Interview –
Michel; Planting and Bidoli, 1999: p91). In differentiating their services, mobile
operators would hope to reduce the level of churn (Interview – Soteriades; Survey -
Henkel): currently 18% for contract subscribers and 25% for pre-paid subscribers
(Szczesniak, 1999: p18). Furthermore, operators are likely to compete as portals so as
to increase their understanding of customers demand, which would enable them to
develop further user applications and to sell their own products to customers via their
portals (Interviews – Michel, Soteriades).
Vodacom and MTN have established Internet portals and have, therefore, developed
the necessary capabilities to establish mobile portals (Interview – Drop). Both
companies have established portals which operate on fixed and mobile lines: MTN
has its ICE (Information, Content and Entertainment) portal, while Vodacom, with its
partner, iTouch, established Yebonet (Interview – Michel; iTouch, 2000: p1). Further,
MTN’s mtnsms.com is the largest site in South Africa with 3.5 million subscribers
(Koenderman, 2000; Interview - Michel). In order for the mobile operators to succeed
User applications
Content aggregators
COPYRIG
HT U
CT
69
as content aggregators, it is necessary that they acquire content sources (Survey –
Bezuidenhout). MTN, through its close alliance with Johnnic, has an advantage over
Vodacom in this regard (Interview – Michel; Telephonic interview – Varghese).
Of the seven segments, competition is likely to be fiercest within this one (Interview –
Drop). In addition to competing with one another, the mobile operators can expect
competition from the existing Internet service providers, such as M-Web (Telephonic
interview – Varghese), and from media groups as a result of their ready access to
content (Survey – Bezuidenhout). Finally, pure portal plays such as Exactmobile.co.za
have entered the fray (Wood, 2000: 80).
4.5 Conclusions to the findings
As discussed earlier, the South African m-commerce industry is an attractive one,
although not as attractive as the industry Western Europe and Japan. Of Porter’s Five
Forces (1980), only the suppliers are in a strong position relative to the mobile
operators. The industry is benefiting from the popularity of mobile phones in South
Africa. This combined with the low penetration level of the Internet bodes well for m-
commerce applications. The two drawbacks facing the South African m-commerce
industry, though, are the customer profile – technophobic, relatively large portion of
uneducated people and limited incomes – and the interventionist role government is
playing.
Consequently, the two mobile operators have widely divergent views as to the
viability of m-commerce in South Africa. MTN, the smaller of the two and the more
enterprising, according to industry participants, is gearing itself up for this market and
intends to locate itself on five of the seven possible links on the industry’s value chain
(Figure 10; page 62). Vodacom, by contrast, restrained by its significant shareholder,
Vodafone and distracted by internal operational issues has taken a more subdued view
of the industry’s potential. The company is participating in the industry to ensure that
it does not develop a competitive disadvantage by avoiding the market altogether. It
has staked its claim to a mere three of the seven segments of the value chain.
COPYRIG
HT U
CT
70
What is suggested by theory does not necessarily amount to what is practicable or is
desirable in reality. This point has been well demonstrated by the divergent views of
the theoreticians on the one hand, and industry analysts and participants on the other,
as to which of the segments along the industry’s value chain are most attractive for
the mobile operators to operate in. For example, analysts and participants believe that
there is much opportunity for the operators in the basic enabling services segment
while Barnett, Hodges and Wilshire (2000) thought that this segment was
unattractive.
m-Commerce is rapidly becoming a reality and the two mobile operators have begun
– albeit with differing levels of conviction and enthusiasm – moving into segments
along the industry value chain. MTN has developed a proprietary basic enabling
technology and has worked with other companies to develop user applications. The
banks, fearful of disintermediation by the mobile operators, have entered into the fray
and are attempting to influence the direction in which transaction support will be
undertaken and have developed mobile banking applications. Finally, numerous role
players are seeking to establish themselves as content aggregators, viewed as the most
attractive role along the industry’s value chain. Both MTN and Vodacom have
established portals as they perceive the benefits to be had from this role: reduced
churn and improved customer knowledge.
Although the industry players are currently positioning themselves along the value
chain and are pursuing the opportunities offered by the industry, the ultimate success
of the industry is by no means assured. The approach the role players undertake will
determine whether the industry fails or becomes a sustainable and profitable one for
all participants in general and for the mobile operators in particular.
COPYRIG
HT U
CT
71
5 Scenarios
When developing scenarios it is useful to recognise that there are two types of forces:
predetermined forces, which are reasonably predictable; and
uncertain forces, which account for the majority of forces influencing the outcome
(Senge, 1994: p276).
The boundaries within which the scenarios are developed, are set by the
predetermined forces (Senge, 1994: p277).
Accordingly, in developing the following scenarios, boundaries were set.
Cognisance was taken of the fact that South Africa is a small player in the global
economy. Therefore, it was assumed that:
The momentum built up around m-commerce internationally will continue.
As handset manufacturers intend producing only Internet-enabled phones after
2001, all phones sold in South Africa after this date, will be Internet-ready.
Figure 11: The Chasm, Bowling Alley and Tornado
Source: Moore, Johnson and Kippola, 1998
One of the aims of this study was to develop scenarios of the South African m-
commerce industry from the perspective of the mobile operators. In pursuit of this
aim, three scenarios were developed, based on the findings and Moore, Johnson and
Kippola’s (1998) ‘Gorilla Game’, the gist of which is depicted in Figure 11.
Interviews with industry participants and responses from analysts suggested two
overarching scenarios: a worst case and a best case scenario. Some findings, though,
COPYRIG
HT U
CT
72
did not fall into either scenario but lent themselves to an intermediate view of the
industry. Therefore, an intermediate scenario was developed. Consequently, a range
of potential outcomes of the m-commerce industry may be considered. They are from
most pessimistic to most optimistic:
Falling into the Chasm, where the industry fails to make the transition across the
chasm;
Bowling Alley Forever, where the industry crosses the chasm but remains in the
area depicted by the bowling balls in Figure 11; and
Mass Adoption, where the industry enjoys good long-term prospects after
undergoing the tornado, which is illustrated in Figure 11.
5.1 Falling into the Chasm
In the ‘falling into the chasm’ scenario, m-commerce applications fail to gain
acceptance beyond the innovators and early adopters, who account for 16% of the
market (Moore, 1991). This scenario is characterised by industry participants
continuing to pursue a techno-centric approach to developing applications (Interviews
– Michel, Soteriades), and an inconsistent and interventionist government (Interview -
Penkin). Consequently, m-commerce falls into the chasm and dies there.
An interventionist and inconsistent government dominates the industry (Interview –
Penkin, Soteriades). It unilaterally imposes standards on the mobile operators and so
stifles the development of innovative products and services (Interview – Malema).
Moreover, continued delays in the resolution of the third operator licence will result in
the third operator being unable to raise finance (Interview – Soteriades).
Consequently, the hoped for stimulation to the market provided by a third player fails
to materialise (Telephonic interview – Bezuidenhout). Further, the mobile market
reaches saturation at the 20-25% penetration level as a result of limited disposable
incomes (Interview – Magaya; Szczesniak, 1999: p12).
The mobile operators remain techno-centric. Technologically advanced applications,
rather than products and services that appeal to consumers, are developed (Interview –
Soteriades). The industry fails to develop applications which are cheap and easy to
COPYRIG
HT U
CT
73
use and so appeal to the low end of the pre-paid market (Interviews – Michel,
Soteriades). Finally, the industry fails to educate consumers as to the capabilities of
their mobile phones and the potential of m-commerce applications (Interview –
Malema, Soteriades).
As the industry fails to develop m-commerce applications which meet the needs of the
market, a new technology emerges; that is, m-commerce is supplanted by a substitute.
The new technology’s sponsors, having learnt from the mistakes made by m-
commerce industry participants, co-operate to promote the industry as well as to
develop products that are customer-focused. As a result of the failure of m-commerce
and assuming the substitute is not developed by the mobile operators, the mobile
operators fail to arrest the decline in ARPU. Consequently, with the passage of time,
the industry will cease to earn above-average profits. Mobile telephony will lose its
attractiveness and the mobile operators will become mere utilities.
5.2 Bowling Alley Forever
In the ‘bowling alley forever’ scenario, the m-commerce industry succeeds in crossing
the chasm; however, the tornado fails to materialise and, therefore, the technology
does not achieve widespread adoption. Rather, the applications developed are utilised
by niche markets within the early majority. Consequently, the industry is said to be in
bowling alley forever (Moore, Johnson and Kippola, 1998).
The third mobile operator will have been announced so enabling the incumbents to
trade access to bandwidth with the newcomer as opposed to being dependent on
government for access (Stones, 2000b; Interview – Malema). All operators will,
therefore, have access to both 900MHz and 1800MHz bandwidths. Consequently, the
industry will not be constrained as a result of infrastructural limitations (Interview –
Penkin).
Industry participants ought to co-operate with each other in the early stages of an
industry’s development (Porter, 1980); however, operators pursue the opportunity to
differentiate themselves by developing proprietary applications before the industry
COPYRIG
HT U
CT
74
has made the transition across the chasm. In so doing, they fail to co-operate and
ensure the widespread adoption of the underlying technology (Porter, 1980). This
would be a continuation of the trend already underway as seen by MTN’s proprietary
development, RIVR (Interview – Michel). As government is less interventionist and is
guided by a clear policy – a White Paper on m-commerce will have been issued
(Interview – Drop) – it does not intervene to limit the development of proprietary
standards despite its preference for participants to use open standards (Interview –
Malema).
In this scenario, saturation of mobile phone penetration is reached at 20-25% of the
population because of limited disposable incomes (Interview – Magaya; Szczesniak,
1999: p12). While the mobile operators recognise the need for customer-centric
applications, they compound the relatively low level of saturation by developing
applications for niche markets within the high income contract subscriber base
(Interview – Soteriades; Telephonic interviews – Bezuidenhout, Varghese). They fail
to develop applications for the pre-paid market, which despite being comprised
mostly of low-end consumers, accounts for a significant portion of the total mobile
market (Interview – Michel). The applications developed include mobile banking and
location-based services which have little appeal to the mass market (Telephonic
interview – Varghese). Consequently, only the high income group adopts m-
commerce applications which results in a maximum penetration of 30% of the total
mobile market in 2004 (Interview – Bezuidenhout).
As the potential of the m-commerce industry appears to be limited to niche markets
within the early majority, Vodacom will feel justified in not aggressively pursuing the
opportunities presented by the industry. Nevertheless, it will provide m-commerce
applications so as not to develop a competitive disadvantage (Interview - Soteriades).
However, MTN will continue to pursue m-commerce opportunities aggressively. The
company will be regarded as the more enterprising of the two companies. As a result,
young, urbane and tech-savvy customers will gravitate towards MTN so as to enjoy
the more advanced applications. While m-commerce fails to move beyond niche
markets (Telephonic interview – Bezuidenhout), there will be greater differentiation
between the two companies in the South African market (Interview – Michel).
COPYRIG
HT U
CT
75
5.3 Mass Adoption
The ‘mass adoption’ scenario is one whereby the chasm is crossed, the tornado ensues
and widespread adoption of the technology occurs (Moore, Johnson and Kippola,
1998). In terms of this scenario mobile phones become the primary means of
accessing the Internet (Interview – Soteriades). Mobile phone will become a tool for
“doing anything, anytime, wherever the user is located “ (interview – Magaya).
The mobile operators, despite being competitors, co-operate to ensure the industry’s
development. That is, co-opetition will enable the industry to cross the chasm
(Brandenburger and Nalebuff, 1996; Porter 1980). They will co-operate by:
Providing basic enabling services and using open standards; and
Actively promoting the industry by educating consumers on how to use their
phones (Interview – Magaya, Soteriades).
Government adopts a pro-m-commerce policy and aids the industry in overcoming the
public’s technophobia and lack of education by:
educating consumers as to the functionality of their phones and the potential of m-
commerce;
assuming the role of model user. It will play this role as a result of the ‘Foresight
Project’. This is a joint project between the Department of Communication, and
the Department of Arts, Culture and Science and Technology, which seeks to
develop scenarios of future technology applications (Interview – Malema); and
implementing pilot projects to aid industry development. One such pilot scheme is
government’s ‘chip initiative’ as discussed under ‘Mobile financial services’, page
46 (Interviews – Drop, Malema).
Over the next eighteen months, the operators will progress from providing:
Content-back services, which are simple requests for information which are
returned to the users’ mobile phones in a short space of time; for example, an
account-balance enquiry, to
Event-driven ticketing.
COPYRIG
HT U
CT
76
These services will be delivered using existing technology (Interview – Michel).
While, 2.5G technology is currently being piloted, it is expected to be in place within
the next eighteen months (Interview – Michel). The introduction of 2.5G technology
will facilitate the development of additional applications (Interview – Penkin).
The mobile operators will develop applications which are customer-centric, rather
than techno-centric (Interview – Michel, Soteriades). Further, the operators will need
to pursue the mass-market (Interview – Michel). Three examples of such applications
are:
community-based information as discussed under ‘Mobile information
provisioning’, page 47 (Interview – Michel);
micro-payments. As the majority of South Africans are under-banked, micro-
payments would fulfil a need for cashless payment mechanism (Interview – Drop,
Malema); and
the marriage of the lottery and mobile phones. The introduction of the lotto as an
entertainment application would lead to the widespread adoption of m-commerce,
as the lottery is particularly popular – R1.1 billion will be spent on the lottery in
2000 (Telephonic interview – Varghese; Kruger, 2000: pp6-7).
As a result of the co-operation amongst the mobile operators, active promotion of the
industry and development of customer-centric applications which meet the needs of
the mass market, the industry crosses the chasm. Once the industry has made the
transition from early adopters to the early majority, then the operators cease to co-
operate with each other and begin to compete directly (Porter, 1980). The tormado
ensues and the market rushes to adopt m-commerce applications as they meet their
needs
Vodacom now realises the appeal of m-commerce. Through its close relationship with
Vodafone, would soon catch up with MTN in developing and providing innovative m-
commerce applications (Survey – Henkel, Varghese). Furthermore, as government
will have established a framework for foreign participation in the telecoms sector
(Interview - Malema), an international operator could invest in MTN against a
background of international consolidation amongst telecoms (Interviews – Magaya,
COPYRIG
HT U
CT
77
Michel). MTN, allied with an innovative international mobile operator, could develop
into a formidable player (Interview – Michel). Finally, a wild card facing the industry,
would be DoCoMo’s entry into the market. DoCoMo has adopted a policy of
international expansion so as to ensure the success of its standard (DoCoMo Annual
Report, 2000). DoCoMo could form an alliance with the third mobile operator as the
third operator is expected to focus on data services (Interview – Penkin). The South
African m-commerce industry would become competitive and dynamic as the
operators struggle to achieve dominance of the market and, therefore, gorilla status.
5.4 Conclusion to scenarios
The ultimate outcome for the industry – whether it fails or succeeds and the extent to
which it succeeds - depends on the conduct of government, a 10X force on the South
African m-commerce industry, and the mobile operators themselves.
5.4.1 The role of government
The extent to which government is interventionist and guided by policy principles will
impact on the industry’s well-being. In the worst-case scenario – falling into the
chasm – government lacked a clear policy direction and played an interventionist role.
Consequently, the uncertainty which industry participants experienced was greater
than that which emerging industries would ordinarily experience. Further, the level of
government intervention – in the form of standards being imposed resulted in the
stifling of innovation. In the case of the intermediate scenario, bowling alley forever,
government, while still interventionist, is at least guided by a White Paper. Its
decisions are therefore predictable and understandable so reducing the degree of
uncertainty to which industry participants are exposed. Industry participants are able
to work around government’s interventionist instincts by trading access to spectrum,
for example. Finally, in the best case scenario, mass adoption, government is guided
by clear policy direction and assumes a supportive role to the industry: evidenced by
its proactive promotion of the use of industry applications and education of
consumers.
COPYRIG
HT U
CT
78
5.4.2 The role of the mobile operators
The industry’s ultimate success, though, is not dependent on government’s actions
alone. The mobile operators, through the extent to which they co-operate and develop
services which meet consumer needs will ensure that the industry crosses the chasm,
so improving the likelihood of their succeeding. In the worst case scenario, the mobile
operators compete to differentiate themselves through alternative standards before the
industry crosses the chasm. Further, they retain their techno-centric approach to the
development of applications. Consequently, the industry fails as most customers reject
their offerings. In the intermediate scenario, the operators still fail to co-operate with
one another. However, while the mobile operators develop customer-centric
applications, they target the tech-savvy and affluent segment of the market – a small
portion of total potential customers. Consequently, niche markets do develop but mass
adoption remains a dream. Mass adoption, though, will become a reality when the
mobile operators co-operate with one another in developing common standards and
educating consumers. In addition, the development of customer-centric applications
which appeal to and meet the needs of the mass market aids widespread adoption.
Finally, the industry’s ultimate success will be influenced by the penetration level at
which mobile handsets reach saturation. The extent to which industry players can
influence this, though, is limited: this will be determined by the country’s economic
growth.
COPYRIG
HT U
CT
79
6 Recommendations to mobile operators
If the m-commerce industry is to move beyond its current nascent state and achieve a
sustainable future, it is imperative that the mobile operators restructure their business
operations to reflect the emergence of the new technology, and co-operate with one
another to increase the likelihood of the industry’s success. As has been shown in the
Theoretical Literature Review, Chapter 2, an emerging industry’s long-term success is
dependent on co-opetition amongst the industry participants. Such co-opetition will
ensure that the underlying technology will cross the chasm. Once the industry has
crossed the chasm, mass adoption will be possible. Only then should they compete
directly with each other.
While the South African m-commerce industry is in its infancy and has yet to cross
the chasm, as discussed in the Findings, Chapter 4, the mobile operators are not co-
operating with one another. Rather, they are competing to establish alternative
technologies – as seen by MTN’s introduction of its RIVR technology. If the mobile
operators were to fail to co-operate with one another, it is unlikely that the industry
would achieve a sustainable outcome.
It is, therefore, recommended that the incumbents co-operate with one another by:
Promoting a single standard and developing open architectures, as discussed
already;
Changing their approach from a technology to a customer focus (Interview –
Magaya, Soteriades); and
Stimulating the industry by educating customers as to the benefits of new
applications (Interview – Malema, Soteriades).
With the exception of the need to co-operate in terms of standards and open
architecture, the Findings have highlighted that industry participants are well aware of
the need to develop a customer-centric approach and to educate customers. This bodes
well for the industry’s development. However, what remains is for industry
participants to understand the importance of open architectures and to actually co-
operate across all three areas.
COPYRIG
HT U
CT
80
7 Areas for further work
As m-commerce is an emerging industry, the type of business model which industry
participants believe would be successful within the m-commerce industry “changes on
a daily basis” depending on how consumers transact (Interview – Penkin). A wide
range of business models for the m-commerce industry have been proposed and have
been grouped under the following categories:
Internet model;
Mobile telephony model; or
A hybrid of the above two.
It would be invaluable to the industry’s participants if a study were to be done which
investigated and identified which of the three broad business model categories would
be most appropriate and likely to yield profits for the participants.
The picture as to which business model would be successful for m-commerce industry
participants is clouded by a lack of understanding of the pre-paid customer segment.
Not all pre-paid consumers are at the lower-end of the market: many customers opt
for the pre-paid option as it offers them alternative payment methods (Interview –
Penkin). It would, therefore, be worthwhile to understand the breakdown of this
segment. This would enable the mobile operators to develop applications which meet
the needs of this market and to develop a business model which is appropriate to the
manner in which customers within this segment transact.
COPYRIG
HT U
CT
81
8 Bibliography
Allard K, Young N, McAteer S and Wigder ZD. 2000. Lessons from Japan: i-mode
provides model for successful mobile execution. www.jup.com/sps/reasearch, 9
August
Alpert M and Musser G. 2000. The Wireless Web. Scientific American, October
Arthur B. 1996. Increasing returns and the new world of business. Harvard Business
Review, July-August
Attwood R and Duncan S. 2000. Mobile Commerce: Strategies for the new business
Paradigm. FT Telecoms. London
Bannan KJ. 2000. The promise and perils of WAP. Scientific American, October
Barnett N, Hodges S and Wilshire MJ. 2000. M-commerce: An operator’s manual.
McKinsey Quarterly, Number 3
Bennet J. 2000. Cellphone king who avoids red carpet in his Midrand citadel. Sunday
Times, 27 August
Bidoli M. 2000. Liberalisation issue hots up. Financial Mail, 17 March
Bidoli M. 2000. Quick, cut the chains – the economy is on the line. Financial Mail, 14
April
BMI-TechKnowledge Group. 2000. Communication technologies: Handbook 2000.
Brady G. 2000. Mobile phone operators in South Africa; Standard Equities, 13
September
Brandenburger AM and Nalebuff BJ. 1995. The right game: Use game theory to
shape strategy. Harvard Business Review, July-August
Bureau for Economic Research. 2000. Exploring the potential of e-commerce in South
Africa. No 4
Business Day. 2000. WAP service. 5 October
Business Report. 2000. Nedbank and NedTel Cellular first to launch WAP banking in
SA. 25 July
Business Report. 2000. MTN seals licensing deal with Italy’s Wind. 7 October
Calori, R. 1992. Effective strategies in emerging industries. The strategic management
of technological innovation. (ed.) Loveridge R and Pitt M. John Wiley & Sons.
Chichester
Computing SA. 2000. Vodacom and MTN look to dominate SP Market. 21 August
COPYRIG
HT U
CT
82
Creamer T. 2000. Cabinet drives telecom change. 20 October
Daugherty, Eugster C, Roche P and Stovall T. 1999. Information unleashed: The
coming of wireless data. McKinsey Quarterly, Number 2
Department of Communications. 2000. Green paper on e-commerce: Making it your
business. November
Di Silvestro F. 2000. Icasa denies MTN, Vodacom access to new spectrum. HSBC, 6
November
Easterby-Smith M. 1993. Management research. Sage, London
Engineering News. 2000. WAP technology advances. 11 August
Erasmus, D. 2000. The “next big thing”: is the mobile commerce ready to deliver?.
Convergence Vol 1 No 1
Evans P and Wurster TS. 1999. Getting real about virtual commerce. Harvard
Business Review, November-December
Financial Mail. 2000. Ranking the brokers. 26 May
Financial Mail. 2000. Mobile e-commerce: unplugging the Internet. 9 June
Financial Times. 2000. Making time for a new way to shop. 21 June
Financial Times. 2000. DoCoMo’s i-mode stumbles. 16 August
Financial Times. 2000. German 3G licence auction raises $45.8bn.17 August
Financial Times. 2000. Spain rethinks 3G strategy. 4 September
Financial Times. 2000. HK chooses hybrid 3G auction. 3 October
Fox J. 2000. A river of money will flow through the wireless web in coming years. All
the big players want is a piece of the action. Fortune, 9 October
Gordon G. 2000. Networks consolidate services. Sunday Times Business Times, 30
January
Grant RM. 1996. Contemporary Strategy Analysis: Concepts, techniques,
applications. Blackwell Publishers
Grove AS. 1988. Only the paranoid survive. HarperCollins Business
Hamel G and Prahalad CK. 1994. Competing for the future. Harvard Business School
Press
Hubbard G. 1999. Analysing the environment; Australian and New Zealand Strategic
Management: Concepts, contexts and cases. (ed.) Lewis G, Morkel A, Hubbard G,
Davenport S and Stockport GJ. Prentice Hall, London
iTouch. 2000. Vodacom and iTouch: Putting partnerships to work. iTouch: Welcome
to the mobile era. 8 August
COPYRIG
HT U
CT
83
Jonash RS and Sommerlatte T. 1999. The innovation premium: How next generation
companies are achieving peak performance and profitability. Perseus Books.
Reading, Massachusetts
Kahney L. 2000. The third-generation. Scientific American, October
Kehoe CF. 2000. m-Commerce: advantage, Europe. McKinsey Quarterly, Number 2
Kelsey D. 2000. KPMG to telcos: Partner up for m-commerce or die.
www.computeruser.com/news/00/07/06/news19.html. 6 July
Koenderman T. 2000. Web traffic surges again. Financial Mail, 15 September
Kruger E. 2000. New spending destinations. ABN Amro. 19 July
Kunii IM; 2000. Dialing the right number. Business Week, 16 October
Lewis G. 1999. Strategic management concepts. Australian and New Zealand
Strategic Management: Concepts, contexts and cases. (ed.) Lewis G, Morkel A,
Hubbard G, Davenport S and Stockport GJ. Prentice Hall, London
Laudon KC and Laudon JP. 1996. Management information systems: Organisation
and technology in the networked enterprise. Prentice Hall
Mee P and Halpern-Lande A. 1999. Dial m for commerce. The Banker, April
Moore GA. 1991. Crossing the chasm. HarperBusiness
Moore GA, Johnson P and Kippola T. 1998. Gorilla Game: An investor’s guide to
picking winners in high technology. HarperBusiness.
Muller-Veerse F; 2000. Mobile Commerce Report. Durlacher Research Ltd
Nakamoto M. 2000. DoCoMo and Palm in net link. Financial Times, 3 September
NTT DoCoMo Annual Report
Planting S and Bidoli M. 1999. Multimedia over mobile phones: The worldwide WAP
wave. Financial Mail, 12 November
Porter ME. 1980. Competitive strategy. Free Press, New York
Porter ME. 1985. Competitive advantage: creating and sustaining superior
advantage. Free Press
Prahalad CK and Ramaswamy V. 2000. Co-opting the customer competence. Harvard
Business Review, January-February
Price C. 2000. New partnerships to stimulate market. Financial Times (date not
recorded)
Rohwer J. 2000. Today, Tokyo. Tomorrow the world!. Fortune, 18 September
Senge P. 1994. The fifth discipline fieldbook. Nicholas Brealey Publishing. London
Sharon M. 2000. The legend of 1800. African Communications, Issue 3
COPYRIG
HT U
CT
84
Stockport GJ. 2000. Developing skills in strategic transformation. European Journal
of Innovation Management. Vol 3, Number 1
Stones L. 2000. Satra criticises Vodacom for poor allocation of numbers. Business
Day, 5 January
Stones L. 2000. Cellphone groups stymied. Business Day, 29 August
Szczesniak A. 1999. Vodacom Group ( Pty) Ltd: In a class of its own. ABN Amro, 12
November
The Economist. 1999. Telecommunications Survey. 9 October
The Economist.2000. i-modest success. 11 March
The Economist. 2000. Qualcomm’s Dr Strangelove. 17 June
The Economist. 2000. A beauty contest turns ugly. 8 July
The Economist. 2000. Battle of the airwaves. 29 July
The Economist. 2000. The price is right. 29 July
The Economist. 2000. The wireless gamble. 14 October
The Economist. 2000. A Finnish fable. 14 October
The South African Telecommunications Regulatory Authority. 1999. Briefing to the
portfolio committee on communications. 7 September
Van der Kooy R .2000. Knott-Craig remains excited. Finance Week, 10 November
Wegner T. 2000. Quantitative research methodology with emphasis on survey
sampling design. University of Cape Town Press
Wilson D. 2000. The Future is here. Or is it?. Scientific American. October
Wood T. 2000. The Wireless Debate. Reaching Out. June
www.docomo.com. 2000. Site visited on 3 September and 22 November
www.fundamo.co.za. 2000. Fundamo: More than just a mobile payment solution. 13
September
www.jupitercommunications.com/company/pressrelease. 2000. Jupiter: Europe and
US failing to learn from Japan’s mobile commerce success. 25 September
www.m-cell.co.za. 2000. Ownership structure – M-Cell. 1 September
www.mcommercetimes.com/industry/27. 2000. Interview: Cliff Raskind – Strategy
Analytics. 19 April
COPYRIG
HT U
CT
85
Question Aims of research Theory
Existing mobile industry structure
1. As at the end of 1999, the ITU (2000) estimates that
there were 5.3 million mobile users in South Africa.
BMI-TechKnowledge (2000) estimates that new cellular
subscribers are joining at the rate of 100 000 per month.
Do you think that the current rate of growth will be
sustained?
Yes
No:
Likely to increase
By how much over the next: 1 yr 2yr 3yr
Likely to decrease
By how much over the next: 1 yr 2yr 3yr
2. Is the average price per unit of mobile calls likely to fall
with the introduction of a third mobile operator?
Yes
No
To assess the attractiveness of m-
commerce.
Mobile operators have seen their
average revenue per unit (ARPU)
fall – abroad it is the result of
competition; locally it is the result
Eight forces
pre-existing industry (Hubbard)
government (Porter, Hubbard)
new entrants (Porter)
10X force (Grove)
Appendix A
: Survey guide
COPYRIG
HT U
CT
86
3. In your opinion has the government managed radio
spectrum allocation efficiently?
Yes
No
Please give your reasons
4. What lessons can South Africa learn from America and
Europe in terms of the allocation of radio spectrums?
5. BMI-TechKnowledge (2000) research indicates that
just under half the existing mobile subscribers are
‘indifferent’ about their network operator. What market
share do you think the third operator will capture in its:
First year Second year Third year
<10% <10% <10%
10-19% 10-19% 10-19%
20-29% 20-29% 20-29%
>30% >30% >30%
of changed consumer profile. The
introduction of m-commerce is the
means whereby operators are better
able to differentiate themselves and
so increase their ARPU.
Government’s management of
radio-waves and licence allocation
has influenced the emergence of m-
commerce abroad. Similarly, the
manner in which government
administers radio-waves and
licences locally will determine the
industry's viability.
The extent of existing customer
loyalty could act as an entry
barrier.
COPYRIG
HT U
CT
87
Question Aims of research Theory
Development of m-commerce
6. How would you define m-commerce?
7. Do you think the introduction of m-commerce will
provide opportunities for them to differentiate their
services?
Yes – if yes, why?
No – if no, why not?
8. In Europe governments have awarded 3G licenses
through auctions (Germany and Britain) where the highest
bidder has won, or through beauty contests (Sweden)
where the winning bid has been that party which has been
best able to meet a range of government objectives. Which
basis do you think South African government is likely to
use in awarding the 3G licenses?
Auction
To define m-commerce
To establish which m-commerce
applications are likely to gain
widespread acceptance in the South
African market.
The cost of the license will
determine the return on the
winners’ investment and will
influence:
The cost of the products to the
consumer so influencing adoption
The pace of the roll-out by mobile
operators
Generic competitive strategy
(Porter)
Eight forces: government (Porter,
Hubbard)
COPYRIG
HT U
CT
88
Beauty contest
Other – please state
9. Which of the following m-commerce applications
would you expect to be the most widely used in the South
African market? Please indicate how rapidly you think the
applications you selected will be adopted
Mobile financial services
Mobile banking
Mobile broking
Mobile cash
Mobile payment
Mobile shopping
Mobile retailing
Mobile ticketing and reservations
Mobile information provisioning
Text messaging
News provisioning
Mobile entertainment
Technology Adoption Lifecycle
(Moore, Johnson and Kippola)
M-commerce is currently in the
‘Early Market’ stage of technology
adoption, where technology
enthusiasts (innovators) and
visionaries (early adopters) reside.
The early commercial activity and
media publicity generated by these
groups are important steps along
the road to, and beyond the
‘chasm’.
The expected speed of adoption of
these m-commerce applications
will be a good indicator of:
whether m-commerce will make it
COPYRIG
HT U
CT
89
Mobile gaming
Mobile music
Other
across the ‘chasm’; and
how quickly the pragmatists (early
majority) will adopt the technology
and cause the tornado to form,
ensuring widespread adoption.
COPYRIG
HT U
CT
90
Question Aims of research Theory
m-Commerce strategy
10. Which of the existing mobile operators do you think is
best positioned for the roll-out of m-commerce?
MTN
Vodacom
They are equally positioned
And why?
Questions 11 – 14 relate to the following explanation:
McKinsey suggests that the m-commerce value chain will
be comprised of seven links, which are:
Transport – facilitating data communication between
mobile users and application providers;
Basic enabling services - server hosting, data backup,
and systems integration;
Transaction support – billing services and associated
security;
To develop a scenario of the m-
commerce industry from the
perspective of the mobile
operators.
To identify potential industry
participants and where they are
likely to position themselves on the
industry value chain.
Generic competitive strategy
(Porter)
McKinsey’s Seven Link Value
Supply Chain (Barnett, Hodges,
Wilshire)
Eight forces: new entrants and
competitors (Porter)
COPYRIG
HT U
CT
91
Presentation services – converting content to a suitable
format;
Personalisation – customisation of the content and
presentation;
User application; and
Content aggregators; that is, portals (Barnett, Hodges,
Wilshire, 2000).
11. In which of the above position(s) do the existing
mobile operators have a competitive advantage?
MTN
Vodacom
12. What is their competitive advantage?
MTN
Vodacom
13. Which of the above position(s) do you think the
mobile operators will pursue up to 2004?
COPYRIG
HT U
CT
92
MTN
Vodacom
14. Which of the above position(s) do you think the
mobile operators should pursue up to 2004?
MTN
Vodacom
Questions 15 – 22 relate to the following explanation:
McKinsey suggests that mobile operators should pursue
four positions along the value chain which are:
Transport;
Transaction support;
Personalisation support; and
Content aggregation
15. Which other companies are likely to compete with the
mobile operators in the transport segment of the m-
commerce value chain? Why?
McKinsey argues that the mobile
operators should position
themselves along four positions on
the industry value chain as
identified by themselves.
The mobile companies currently
enjoy a competitive advantage in
the transport and transaction
support segments. In establishing
COPYRIG
HT U
CT
93
16. What core skills will they have to acquire to compete
in the transport segment of the value chain?
17. Which other companies are likely to compete with the
mobile operators in the transaction support segment of the
m-commerce value chain? Why?
18. What core skills will they have to acquire to compete
in the transaction support segment of the value chain?
19. Which other companies are likely to compete with the
mobile operators in the personalisation support segment of
the m-commerce value chain? Why?
20. What core skills will they have to acquire to compete
in the personalisation support segment of the value chain?
21. Which other companies are likely to compete with the
mobile operators in the content aggregation segment of the
m-commerce value chain? Why?
themselves along the various
segments the mobile operators may
have to contend with competitors
from other industries.
The mobile operators stand to
make substantial profits by
participating in the personalisation
support and content aggregator
segments. In establishing
COPYRIG
HT U
CT
94
22. What core skills will they have to acquire to compete
in the content aggregation segment of the value chain?
23. Placing an emphasis on the mobile operators, what do
you think the m-commerce industry will look like in
2004?
themselves along the various
segments the mobile operators may
have to contend with competitors
from other industries.
COPYRIG
HT U
CT
95
Question Aims of research Theory
Existing mobile industry structure
ARPU has fallen in European mobile industry following the
entry of additional competitors. In South Africa ARPU has
fallen as a result of the mobile industry increasingly pursuing
the lower, pay-as-you-go market.
1. To what extent do you think ARPU will fall further?
2. Do you think that the introduction of m-commerce services
will reverse this trend?
3. Will pay-as-you-go customers be able to use their
telephones as payment mechanisms?
4. Do you think government is likely to give the existing
mobile operators access to the 1800 MHz frequency range
prior to the third mobile operator license being awarded? If
To establish their perceptions of
the attractiveness of the local m-
commerce industry
Eight forces: Government
(Hubbard, Porter)
Appendix B
: Interview guide
COPYRIG
HT U
CT
96
yes, why? If no, why?
5. Do you feel it is possible to develop m-commerce
applications using the 900 MHz frequency? If yes, why? If
no, why?
COPYRIG
HT U
CT
97
Question Aims of research Theory
Development of m-commerce
6. Do you see m-commerce in South Africa relying on the
progression of existing technologies or on the introduction
of 3G mobile networks?
7. As at the end of 1999, the ITU (2000) estimates that there
were 5.3 million mobile users in South Africa. BMI-
TechKnowledge (2000) estimates that new cellular subscribers
are joining at the rate of 100 000 per month. Do you think that
the current rate of growth will be sustained?
Yes
No:
Likely to increase
By what percentage over the next: 1yr 2yr 3yr
Likely to decrease
By what percentage over the next: 1yr 2yr 3yr
To establish their perceptions of
the attractiveness of the local m-
commerce industry
Eight forces: Grove’s Sixth
Force (Grove)
COPYRIG
HT U
CT
98
8. ARPU has been declining abroad as a result of increased
competition and locally as a result of the growth in the pay-as-
you-go market. To what extent will m-commerce result in
increased revenues from consumers?
9. In 1999, expenditure on mobile-related services was 0.9% of
national disposable income (R4.5bn out of a national
disposable income of R505.2bn). In 2000, it is expected to
amount to 1.7% of national disposable income (R9.5bn out a
national disposable income of R554.2bn) (SARB). How large a
proportion of disposable income could mobile-related services
ultimately grow to? And why?
10. To what extent do you think that additional growth in
mobile-related expenditure would be attributable to the
introduction of m-commerce?
11. Which of the following m-commerce applications would
you expect to be the most widely used in the South African
market?
To establish their views as to
which m-commerce applications
are likely to gain widespread
acceptance in the South African
market
Technology adoption lifecycle:
crossing the chasm and bowling
alley (Moore)
COPYRIG
HT U
CT
99
Mobile financial services
Mobile shopping
Mobile information provisioning
Mobile entertainment
Other
Why do you think this?
COPYRIG
HT U
CT
100
Question Aims of research Theory
m-Commerce strategy
McKinsey suggests that the m-commerce value chain will be
comprised of several links, which are:
Transport – facilitating data communication between
mobile users and application providers;
Basic enabling services - server hosting, data backup, and
systems integration;
Transaction support – billing services and associated
security;
Presentation services – converting content to a suitable
format;
Personalisation – customisation of the content and
presentation;
User application; and
Content aggregators; that is, portals (Barnett, Hodges,
Wilshire, 2000).
To identify where on the
industry value chain their
companies hope to position
themselves
McKinsey’s Seven Link Value
Supply Chain (Barnett, Hodges,
Wilshire)
COPYRIG
HT U
CT
101
12. In which of the above position(s) are you attempting to
develop a competitive advantage?
13. What do you feel your competitive advantage should be?
14. Where do you hope to position yourself along the value
chain?
15. How will your existing customer profile impact on your
decision to compete in this segment of the m-commerce value
chain? For example, an emphasis on pay-as-you-go customers
could weaken intentions to provide personalisation support.
Are there trade-offs in your particular strategy?
16. What new competencies will you need to develop to
compete in this segment of the m-commerce value chain?
17. What strategy choices (alliances, joint-ventures,
acquisitions) do you feel will be necessary to develop those
competencies? And why?
To identify their competitive
strategies to achieve their hoped-
for position along the industry
value chain Levels of co-operation (Jonash
and Sommerlatte)
COPYRIG
HT U
CT
102
18. What criteria do you use to form:
Alliances
Joint-ventures
And to identify:
Potential acquisitions?
19. In which of the above position(s) do you feel your
competition has a competitive advantage?
20. What do you feel their competitive advantage is?
21. Where do you perceive the competition positioning
themselves on this chain?
22. What other players could enter the industry?
23. Do you feel there will be alliances formed between the two
existing operators to determine industry standards?
To identify which other
companies they expect to
challenge them in the links on
which they intend to position
themselves
To identify their competitive
strategies to deal with the other
existing operator
Eight forces: competitors
(Porter)
Co-opetition (Brandenburger,
Nalebuff)
Eight forces: potential entrants
(Porter)
COPYRIG
HT U
CT
103
24. What methods will you use to encourage mass-adoption of
m-commerce?
There are two business models which determine how revenue
is generated through m-commerce.
The internet model relies on giving everything away and
hoping to generate revenue in alternate ways.
The telecom model charges users for the services and time
used. It will ultimately charge for the amount of data
transmitted as well as for the services used.
25. How do you think South African m-commerce providers
will generate income?
26. What do you consider the key success factors to be for m-
commerce players?
27. Can you paint a picture of what the industry will look like
in 2004? Will the industry still be attractive? Who will be the
players? What role will the government play? What will be the
emerging technology after m-commerce?
Technology adoption lifecycle:
crossing the chasm (Moore)
